20413

Reasonable excuse - filing of Online Return - meaning of days in order to calculate the seven day extension for filing such a return - was it a reasonable excuse to conclude that days meant working and not calendar days - no - appeal dismissed

LONDON TRIBUNAL CENTRE

	TEW BROTHERS LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	JUDITH POWELL (Chairman)
						MRS C S de ALBUQUERQUE

Sitting in public in London on 10 October 2007

The Appellant did not appear

Mr Simon Chambers, Advocate, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This is an appeal against a default surcharge with respect to the period ending 31 March 2007.

2.	The Appellant did not attend the appeal in person or by a representative.  When a telephone call was made to the Appellant’s offices from the Tribunal Centre to enquire whether the Appellant was aware that the hearing was set down for that day and whether anyone proposed to attend on its behalf a person who said he was speaking for the Appellant confirmed that the Appellant was aware that the hearing of the Appeal was taking place on 10 October but that no one had time to attend to represent the Appellant.  The Respondents made a successful application under Rule 26 of the Value Added Tax Tribunals Rules 1986 to have the appeal heard in the absence of the Appellant.

3.	The grounds for Appeal were contained in an undated letter from the Appellant to the Respondents referred to and attached to the Notice of Appeal.  Another, subsequent, letter dated 11 July 2007 was also forwarded to the Tribunal.  Both letters were written by Mr Shaun Tew a director of the Appellant company.

4.	The first letter explained that the Appellant intended to pay the VAT due by the Direct Debit method and thought that the seven day extension for filing allowed in the case was calculated on the basis of working, rather than calendar, days.  The Appellant did file a return for the relevant period but it was only filed before the due date if the seven day extension was based on working, rather than calendar, days.  If the Appellant had been correct the return was filed on time and the Appellant would not be in default.  If the return is filed electronically on time (taking into account the extended deadline allowed for such returns) payment is actioned by the Respondents and the date of actual payment (assuming that sufficient funds are contained in the relevant bank account) is entirely their responsibility.

5.	If the Appellant was incorrect the return was filed late and it is in default and liable for the surcharge unless it has a reasonable excuse for the default.

6.	The first letter from the Appellant explains what how they thought the due date for making electronic returns was calculated; however that letter also acknowledged it “now understands that it is 7 days regardless of weekends and bank holidays to file”. There is no evidence in the correspondence that it believes its original interpretation that days meant working, rather than calendar, days is correct.  The letter also referred to the surcharge of £2,057.16 being based on 2% of the VAT due on the relevant return and complained that this was relatively large and that they were trying to use the most up to date methods for payment. Of course, the fact that there is a default surcharge charged at 2% means that there must have been a prior default. The prior default is also referred to in the first letter; it occurred in the same period in 2006 and there is some suggestion this was also caused as a result of confusion about the meaning of “days” on that occasion also and whether the reference to 7 days was to “calendar” or “working” days.  In the second letter the Appellant says “perhaps we should have appealed this notice” i.e. against the first default but this suggestion was not pursued any further so far as the Tribunal is aware.

7.	The standard due date for the submission of a VAT return and payment of VAT due on that return is contained in Regulations made pursuant to Value Added Tax Act (VATA) 1994.  Regulation 40 of the Value Added Tax Regulations 1995/2518 (VATR) contains provisions requiring the payment of VAT in respect of a period to which the return relates no later than the last day on which he is required to make that return. The same Regulations contains provisions authorising payment by electronic means and allows direction to be made allowing additional time for payments made by means of electronic communications and allowing different times for different means of payments and stating that a later payment so allowed does not constitute a default for the purposes of the default surcharge.

8.	Regulation 25 VATR contains provisions about the manner and timing for VAT returns.  In particular Regulation 25(4A-4M) deals with and authorises the making of electronic returns; but only if the return is in a form approved by the Commissioners.

9.	The Terms and Conditions relevant where VAT is paid by an approved electronic method can be read electronically on the HMRC web site and, if printed, run to a single side of A4 paper.  Payment by Direct Debit is capable of being an approved electronic method. The Terms and Conditions were printed by the Respondents and presented for the Tribunal to consider at the hearing.  Those Terms and Conditions state that the Direct Debit payment method is approved only when the VAT Online Returns Service is also used to submit the return. The Terms and Conditions deal with the timing of VAT Online Returns and provide that electronic returns must be received by the seventh calendar day after the standard due date and that direct debit payments will not be collected for a further three working days after the extended due date for receipt of the VAT Online Return.

10.	Applying VATR and the Terms and Conditions to the relevant period in this case (the period ending 31 March 2007) the standard due date for a paper return was 30 April 2007 and the extended due date for a VAT Online Return was seven calendar days after this - i.e. 7 May 2007.  If the period of extension had been seven working days (as the Appellant thought) rather than seven calendar days the extended due date would have been 10 May 2007 since Monday 7 May was a Bank Holiday.  Where a VAT Online Return is made, a record of the filing is generated and a paper copy of the record for the Return actually filed for the relevant period was presented to the Tribunal showing that the return was filed on 9 May 2007.

11.	In the absence of the Appellant, Mr Chambers put forward the arguments for the Appellant that it had been mistaken about the nature of the days to be taken into account and that they had only recently started to use the Direct Debit payment method:  indeed had only used electronic payments of any type (earlier payments having been made by BACS) for twelve months and that they had not benefited from late payment:  they had the funds and were not seeking a cashflow advantage for paying late. The surcharge payment was relatively large because it was based on a quarter where the VAT payment was particularly high and this would be an undue burden for the business.

12.	For the Respondents he argued that the Terms and Conditions and the VAT Online Return itself all made it very clear what the term “7 days” meant.  Indeed the VAT Online Return clearly stated the extended due date - and in the Return in question the extended due date of 7 May 2007 was clearly stated.  He also argued that if the Appellant had been confused about the meaning of “days” in calculating the due date for the same period in 2006 it would have had ample time to resolve its confusion by the same time in the following year.

13.	We conclude that the meaning of “seven days” in this context was made clear both in the Terms and Conditions and in the Return itself.  There was no ambiguity in either document.  If the Appellant knew that there was a seven day extension (which seems to have been the case) it was taking a risk to assume that the reference was to working days since it was at least equally possible that the reference was to calendar days.  It should have checked the position before relying on its interpretation.  Had it checked the position it would have realised that days meant calendar days since the meaning is stated quite clearly in the Terms and Conditions and the VAT Online Return contains the actual due date.  We would have had some sympathy if the Terms and Conditions had referred vaguely to days without clarification and if the VAT Online Return had left it to the taxpayer to calculate the due date.  And if the Appellant had been confused about the meaning of “days” when the first default occurred at the same time the previous year it had the opportunity then to resolve the confusion and understand the meaning of days in this context.

14.	Accordingly we dismiss the Appeal and make no order as to costs.

JUDITH POWELL
CHAIRMAN

RELEASED: 25 October 2007

LON 2007/1286