Datapoint Global Services Limited (formerly Touchbase Communications Limited) v Her Majesty's Revenue & Customs, V 20971

DATAPOINT GLOBAL SERVICES LIMITED

(Formerly Touchbase Communications Limited)

Appellant

and

THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS

Respondents

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DECISION

The appeal

1.1 Datapoint Global Services Limited (formerly Touchbase Communications Limited) (herein called “the Appellant”) appeals against a default surcharge penalty of £32,365 which was imposed because the value added tax due for the accounting period ending 31 December 2006 which should have been paid by 7 February 2007 was not received until a day later.

1.2 In this decision, reference to the Appellant shall mean Touchbase Communications Limited (“Touchbase”) until 2 March 2007 when it became Datapoint Global Services Limited (Datapoint) under new ownership. All the correspondence, communications and contacts relating to this appeal after 2 March 2007 continued to be dealt with under the name Touchbase and at its original offices. This process was delegated by the new owners to Touchbase although Datapoint accepted ultimate responsibility for the appeal proceedings.

2. The legislation

Section 59 of the Value Added Tax Act 1994 (the 1994 Act) provides that where a value added tax return, or the tax due, is not received in time, the taxable person is in default. A surcharge is imposed for the second and subsequent defaults within a period of twelve months. This was the fifth default in the series. Section 59(7)(b) provides that, if a taxable person satisfies the tribunal that there was a reasonable excuse for the return of tax not being sent in time, then he is not liable to the surcharge. However, section 71(1)(b) provides that, where reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse.

The issue

3. Accordingly, the issue for determination in the appeal was whether there was a reasonable excuse for the late receipt by one day of the tax due for the accounting period ending 31 December 2006.

The evidence

4. Oral evidence was given on behalf of the Appellant by Mr Jeffrey Richard Maynard (Mr J Maynard) who had been a Director and the Appellant’s Company Secretary, and Ms Shona Zaccaria (Ms Zaccaria) who at the time of the default was the Accounts Payable Controller within the Appellant’s finance team. Two bundles of documents were produced by the parties.

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5. From the evidence before us we find the following facts.

Background

6. Touchbase was formed in January 1992 by three shareholders, Mr Riorden Maynard (Mr R Maynard), Mr J Maynard and a third person who has to all intents and purposes always been a sleeping shareholder. Subsequently, some fourteen subsidiaries were created. One of these was Touchbase .

7. The Touchbase Group of companies started by selling mobile phones and then in 1995 entered the fixed line market. It expanded into the European telecoms market in 1997 and grew quickly expanding in different markets worldwide. The Appellant Company was sold with four other companies to the Datapoint Group on 2 March 2007 and changed its name to Datapoint. All these companies were involved in European markets.

8. Touchbase Group’s substantial business activities centred on the global communications convergent technologies market. This involved the sale, installation and subsequent servicing of leading products primarily to mult-national corporations in major countries worldwide. Each major office in these countries was run by business leaders reporting direct to Mr R Maynard, the Group Chief Executive Officer. Mr J Maynard had an active Group support role dealing with global corporate governance including legal, insurance and tax issues including the VAT appeal before the tribunal.

The Appellant’s VAT record

9. The Appellant sustained a series of defaults in payment of its VAT to the Commissioners commencing in the second half of 2005 (period 09/05). Even before 2005, the Appellant experienced difficulties in managing its VAT affairs and at one stage in 2004 entered into a Time to Pay agreement in respect of an outstanding debt of £268,909.58.

10. There were further defaults for the periods 12/05 and 03/06. By 30 June 2006 the rate of surcharge had reached 5%. Unfortunately, there was an error of £500 being overlooked in settlement of a VAT liability of £262,793,06 for period 06/06 and although no formal surcharge resulted, the rate increased to 10%. Therefore, if a default resulted in the following twelve months, the surcharge rate would be 15%.

11. Both parties agreed and it is accepted by the tribunal that the Appellant had sufficient funds in its bank account in February 2007 to meet its VAT liability for the quarter ending 31 December 2006 in the sum of £215,769.58.

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Lloydslink automated banking system

12. Lloydslink is a product of Lloyds TSB Bank. It is an automated banking system enabling payments to be made electronically by various methods including CHAPS, BACS, Pay Flow and Funds Flow. This system enables a customer to make payments to suppliers and government departments (inter alia) and receive incoming sums from customers through Lloyds bank accounts. Payments are made instantly.

13. The Appellant began using the system in 2000 and found it normally effective and reliable.

14. The process involves a dedicated data line rented from British Telecom with a Lloydslink data machine terminal (DMT) which is similar to a credit card processor. The DMT is attached to the data line at the user’s premises to enable secure data to flow to the Lloydslink data service centre in Andover, Hampshire.

15. The Lloydslink system DMT requires two types of plastic cards, one pinless and the other a personalized pincard (like a credit card) held by the user’s cheque signatories. The Bank owned the DMT.

16. The DMT is activated by a pinless card. Anyone with a password and knowledge can feed information into the DMT such as items requiring payment through Lloydslink and analyse and print...