20842

Value Added Tax   -   Default Surcharge  -  Return filed one day late as a result of failure of HMRC's server to be able to record the Appellant's electronic filing on 6 May, and problems with the Appellant's book-keeper's internet connections on 7 May such that filing was only achieved on 8 May, one day late  -  Appeal allowed

LONDON TRIBUNAL CENTRE

	KWIK MOVE UK LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	HOWARD M NOWLAN (Chairman)
						PAUL F ADAMS, FCA

Sitting in public in Bristol on 14 October 2008

R Davy, director of Kwik Move UK Ltd, and N James, accountant, for the Appellant

J Holl of HMRC’s Solicitor’s Office, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.   This was a default surcharge case in which three unanticipated events resulted in the Appellant's electronic filing of its VAT return for the VAT period 03/08 being one day late with the result that the Direct Debit receipt of the tax was also late. The amount of the surcharge imposed, at the 5% rate, was £957.14.

The facts

2.   The Appellant company appeared to be a highly efficient, but still relatively small, firm of removal contractors. The present significance of this is that the business was effectively run by Mr. Davy, who alone had signing powers on the Appellant's bank account. Book-keeping affairs and all responsibility for filing VAT returns was entrusted to a part-time book-keeper, Mr. Vince Hudd, who worked for the Appellant for only one day a week. Mr. Hudd worked for others on the remaining days of the week.  He normally worked for the Appellant on Fridays.

3.   The Appellant's VAT return for the period 03/08 needed to be filed electronically by the end of 7 May 2008, a Wednesday. Monday 5 May had been a bank holiday, and so on Tuesday 6 May, Mr. Hudd followed his normal practice of switching his working day for the Appellant when its VAT return needed to be finalised and filed, and so he worked for the Appellant on 6 May. 

4.    On 6 May Mr. Hudd tried on three occasions to file the Return electronically, but the HMRC server was unable to accept the load of numerous filings, and so Mr. Hudd could not access it and file the Return. He phoned the Helpline and was told to try later when the level of demand would have reduced. There is no dispute that the three attempts were made to file on 6 May, since HMRC themselves have a record of this. 

5.    Mr. Hudd accordingly took the papers home with him, and tried to file the return from his own computer. His Virgin internet connection was unfortunately also out of action when he tried to file the return in the evening of 6 May, and on phoning Virgin he was informed that there was a problem that was being corrected, and that it should be working reasonably soon. 

6.    Mr. Hudd did not try to file the return in the early morning of Tuesday 7 May, and accordingly we did not know whether at that time the Virgin connection would have been working or not. On 7 May he was working for a different employer, and so he did not or could not file the return from that employer's computer, but aimed to do so in the evening of 7 May, when he returned home. He presumably assumed that the Virgin problem would be more likely to have been solved by the evening, than the morning, of 7 May, so that he would almost certainly be able to file the return, in due time, in the evening. 

7.    In the evening of 7 May, Mr. Hudd discovered that whilst the previous evening's problem had been solved, a new problem had arisen that again blocked his internet connection and it was not thus until the 8 May that he was finally able to file the Return. Since the tax was to be collected by Direct Debit, it was also paid late, though of course it would have been paid in time, on the Direct Debit machinery, had he been able to file the Return by the end of 7 May. 

8.   The other relevant fact is that Mr. Davy, the managing director and the only person with authority to sign cheques or authorise CHAPS transfers at the Appellant's bank, was in hospital, having severely broken his leg on the previous week-end. 

Our decision

9.    We consider that the Appellant did have a reasonable excuse for its return being filed one day late, and for the tax thus being paid late under the Direct Debit machinery.

10.   The initial cause of the late filing was a fault on the part of HMRC in not having the capacity to take the volume of calls likely to be made on the days when  numerous VAT filings will inevitably be made. We were told that the Appellant had not encountered a similar problem in the past and so had no reason or responsibility to anticipate this problem. The Respondents of course accepted that the initial problem was the result of a fault caused by them, and not the Appellant. 

11.  The remaining question, thus, is whether Mr.Hudd, to whom the filing responsibility was entrusted, had a reasonable excuse for his failure to complete the filing on 7 May. We consider that he did have. He was not at fault for the failure to be able to file on the evening of 6 May on his home computer. With the benefit of hindsight, it is possible that the Virgin fault might have been corrected on the morning of 7 May, prior to the second problem occurring so that Mr. Hudd might have been able to file on the morning of 7 May. Again with the benefit of hindsight, Mr. Hudd might have been able to request the firm for whom he was working on 7 May if he could use their computer to file the Return, and it is possible that that employer, and indeed Mr. Davy, might have had no objection to the Return being filed from the computer owned by the other employer. Mr. Hudd did not give evidence and so we could not establish why he did not endeavour to file either in the early morning on 7 May, or by taking the papers to the different employer and asking to use their computer. Since however he had been told that the Virgin problem was going to be solved and since he assumed reasonably that he would still be able to file from his home computer during the evening of 7 May, we consider that Mr. Hudd should not be criticised for not having seen that there might be a second problem with the Virgin broadband connection, such that his last opportunity to file would be blocked. 

12.   It was suggested on behalf of the Respondents that a CHAPS payment could have been authorised and made up to 2.00 p.m. on 7 May but since the only person with signing authority was in hospital having steel inserted into his broken leg, and since Mr. Hudd would reasonably have assumed that he would still be able to file the Return in the intended manner, it seems impossible to conclude that there was any fault on the part of Mr. Hudd in not trying to contact Mr. Davy in order to action a CHAPS transfer. Amongst other considerations, Mr. Davy would have had to be contacted many hours before the last problem had emerged. 

13.   Having regard to the fact that the key problem that occasioned the late filing was occasioned by a fault on the part of HMRC, and not by the Appellant at all, and then noting that fall back plans that the Appellant is forced to resort to may encounter problems, we consider that this is a case where the Appellant does demonstrate reasonable excuse. Indeed there is something almost ridiculous in the proposition that the Appellant should suffer a penalty of nearly £1,000, at a time when it will doubtless be finding current business difficult, all because of problems initially caused by a fault on the part of HMRC, rather than the Appellant at all.  

HOWARD M NOWLAN
CHAIRMAN

RELEASED: 24 October 2008

LON 2008/1382