20109

DEFAULT SURCHARGE – Payment by electronic method – Whether `payment’ means the time the money leaves the Appellant’s account or the time it is received – Appeal dismissed

LONDON TRIBUNAL CENTRE

	KPACK (UK) LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	MISS J C GORT (Chairman)
						MRS C E HOWELL

Sitting in public in Plymouth on 15 March 2007

Mr D L Kendrick, managing director, for the Appellant 

Mrs P Crinnion, advocate, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This is an appeal against a default surcharge in the sum of £1,851.04 in relation to the period 04/06.  The surcharge was at the rate of 10%.

2.	The Appellant company is a distributorship which supplies egg cartons and associated packaging to egg farms throughout the United Kingdom. It was started in 1999 as a partnership between Mr Kendrick and his wife, and some three years ago was incorporated. At the time the default surcharge was incurred Mr Kendrick employed his brother-in-law as a part-time bookkeeper. Since that time he has now employed a full-time bookkeeper.

3.	There was a short history of default starting from the period 10/04, on each occasion payment had been received between one and two weeks after the due date.  On the occasion of the present default surcharge the due date for the return was 31 May 2006, and, as Mr Kendrick paid using the electronic method of payment, payment was due on 7 June 2006. It was in fact received on 8 June 2006.  The return itself had been received on 16 May 2006.

4.	Mr Kendrick gave evidence to the Tribunal.  His invoices required payment at the end of the month following the date of the invoice, but in reality on average payment was received quite a lot later, sometimes as much as three months later.  At the time of the present default he was owed some £207,000, of which nearly £31,000 was due in VAT.  He owed his suppliers, £134,000 including VAT of £20,000.  He informed the Tribunal that it was traditional for farmers to be slow payers, with the result that he was lending the Government value added tax which he was unable to collect.  

5.	Although by a letter dated 20 June 2006 Mr Kendrick had informed the Commissioners that the company could not afford the surcharge, he told the Tribunal that the company was not short of money, and there was no need for him to make arrangements with the bank. It appeared that Mr Kendrick misunderstood the nature of the electronic system for payment. He claimed that when he paid his main suppliers on 1st or 15th of the month electronically the suppliers received the money on the same day.  However when he paid the Commissioners the money was not received by them on the same day.  He had paid the sum of £18,510.41 electronically on 6 June, and had expected the Commissioners to receive the money on the same day, as it had left his bank on that date.

6.	Mr Kendrick had on two occasions telephoned HMRC, on one occasion he had made an electronic payment which had been received late, and on the second occasion he was asking how he could make the payment by CHAPS.  He had also telephoned after he received the present default surcharge and queried why.  The due date for an electronic payment is shown on the online form.  

7.	The Appellant’s case was twofold.  In the first place Mr Kendrick considered that he had paid by the due date in that he had instructed his bank on 6 June to pay the money, and to him “paying” meant sending the money out, it did not mean receipt in the hands of the payee.  The second argument was that he considered a fine of £1,800 for being one day late was excessive.  He claimed that he had been unaware of the delay when paying electronically and, whilst he had received a letter setting out the proper procedure, this letter had only arrived after he had defaulted in June. He was therefore unaware of the fact that by paying electronically the money would not be received by the Commissioners by the due date.  

8.	The value added tax returns state on their face “You could be liable to a financial penalty if your completed return and all the VAT payable are not received by the due date.”  Whilst the copy of the electronic VAT return that we have seen does not carry that notice, the Appellant had paid previous returns using the form with the warning. Having spoken to the Commissioners previously about payment by electronic funds, and having been advised over the telephone that electronic forms must reach the Commissioners by the 7th calendar day after the due date, we do not find that it is open to Mr Kendrick to claim that he, as managing director of the Appellant, genuinely believed that “payment” meant payment out of his own bank account, rather than receipt by the Commissioners.

9.	As far as his claim that the fine was excessive, we do not consider that the Respondents contravene the provisions of Article 1 of the First Protocol to the Convention on Human Rights contained in the Human Rights Act 1998 Schedule 2, which states:

“Protection of property

Every natural or legal person is entitled to the peaceful enjoyment of his possessions.  No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

10.	In all the circumstances we do not find there is a reasonable excuse for the late payment and the appeal is dismissed with no order for costs.

MISS J C GORT
CHAIRMAN

RELEASED: 16  April  2007

LON/2006/811