MJL Contracts Ltd v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 October 2023 |
| Neutral Citation | [2023] UKUT 254 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2023] UKUT 254 (TCC)
Judge Ashley Greenbank, Judge Andrew Scott
Upper Tribunal (Tax and Chancery Chamber)
In MJL Contracts Ltd v R & C Commrs [2023] BVC 511, the Upper Tribunal upheld a previous decision of the FTT that a default surcharge applied where the taxpayer had submitted their VAT return on time but made only a part payment of the VAT that was due.
MJL were involved in the care and cultivation of woodlands. They submitted quarterly VAT returns but had been served with a surcharge liability notice (SLN) in relation to their 05/19 VAT return under the previous default surcharge regime abolished for accounting periods beginning on or after 1 January 2023. The 05/20 VAT return was due on 7 July 2020. The return was submitted the day before, but only a part payment of the total amount of VAT shown on that return was received by the due date. A further SLN was issued, and a surcharge amount assessed. The 08/20 VAT return was similarly submitted on time but with only a part payment being made by the due date. An SLN was issued and a surcharge amount assessed. The SLN issued in relation to the 05/19 VAT return was subsequently withdrawn and revised surcharge amounts notified for the 05/20 and 08/20 VAT returns, the former being £0. This appeal related to the amended surcharge for the 08/20 VAT return.
The FTT, in a decision made without a hearing, had previously concluded that MJL had not put forward any valid points to support their contention that VATA 1994, s. 59, in relation to the default surcharge regime, was not engaged in this case. In their grounds of appeal, MJL submitted essentially the same grounds as they had before the FTT:
- that s. 59 could not apply in the circumstances of MJL; and
- the word ‘assess’ in VATA 1994, s. 76 required an officer of HMRC to apply his or her mind to arrive at an appropriate surcharge amount and no such assessment had been made.
MJL argued a default surcharge was only imposed in a case where the taxpayer neither submitted a return nor paid VAT following an assessment under VATA 1994, s. 73(1). HMRC submitted s. 59 clearly applied in the circumstances of this case where the returns were submitted on time but payment, in part, was made late.
The UT agreed with HMRC and dismissed the first ground of appeal. The default regime applied where a taxable person was in default in respect of an accounting period. They were in default, under s. 59(1)(b) if HMRC had received the return by the due date, but not the VAT shown on the return. The requirements of s. 59(4) had been met for the relevant return period and MJL was therefore liable to pay a default surcharge.
Dismissing the alternative ground, the UT found ‘assessment’ was simply the process by which the amount of the tax that a taxpayer had to pay was fixed. The manner in which an assessment was made was not prescribed and it could not have been intended that HMRC should be required to determine on a taxpayer-by-taxpayer basis whether and how to assess. It must be open to them to automate the process.
The appeal was dismissed.
The UT reached the inevitable conclusion. The legislation clearly states that a taxpayer is in default in respect of a particular period if the Commissioners have received the return for that period but have not received the amount of VAT shown on the return as payable by them. A part payment is not the amount of VAT shown as payable.
Comment by Angela Bedi, Senior Tax Writer, Croner-i Ltd.
Tony Woon-Sam, of Crown Accountants appeared for the appellant
Ross Birkbeck, counsel, instructed by the General Counsel and Solicitor to His Majesty's Revenue and Customs appeared for the respondents
[1] This is an appeal by the Appellant, MJL Contracts Limited (“MJL”), against a decision of the First-tier Tribunal, Judge Kevan Swinnerton (the “FTT”), dated 5 September 2022 (the “FTT Decision”). The Respondents are the Commissioners for His Majesty's Revenue and Customs (“HMRC”).
[2] The FTT Decision was made without a hearing under the provisions of rule 26 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The FTT dismissed the appeal of MJL against the imposition of a default surcharge under section 59 of the Value Added Tax Act 1994 (“VATA”) in the amount of £720.76. MJL appeals with the permission of the FTT.
[3] The facts are not in dispute. They are set out at paragraphs [11] to [21] of the FTT Decision. In summary, they are as follows:
- The business activity of MJL is silviculture, other forestry activities and specialized construction activities.
- MJL has been registered for VAT with effect from 1 October 2012. It submits returns on a quarterly basis.
- A surcharge liability notice (SLN) was served on MJL on 12 July 2019 in respect of the 05/19 period.
- For the 05/20 period, the due date for the return and payment was 7 July 2020. The return was submitted on 6 July 2020. However, although some of the VAT shown in the return was paid to HMRC on or before the due date, part of the payment (being £33,927.30) remained outstanding on that date.
- On 17 July 2020, HMRC issued a SLN to MJL. The surcharge period was extended to 31 May 2021.
- For the period 08/20, the due date for the return and payment was 7 October 2020. The return was submitted on 7 October 2020. Once again, although some of the VAT shown in the return was paid to HMRC on or before the due date, part of the payment (being £36,038.26) remained outstanding on that date.
- On 16 October 2020, HMRC issued a further SLN to MJL. The surcharge period was extended to 31 August 2021.
- As we have described, HMRC issued SLNs in respect of the 05/20 period on 17 July 2020 and the 08/20 period on 16 October 2020. These notices were computer-generated and issued automatically.
- The SLNs were initially issued on the assumption that the 05/19 period should be treated as the first period of default. It would appear that the SLN for the 05/19 period was later withdrawn. The surcharge amounts were subsequently revised by a notice dated 16 June 2021 to £0 for the 05/20 period and £720.76 for the 08/20 period (being 2% of the outstanding amount of £36,038.26). This appeal relates to the surcharge for the 08/20 period.
[4] We will begin by setting out the legislation that is relevant to this appeal.
[5] The legislation governing the default surcharge was repealed with effect from 1 January 2023. In the periods in question, the legislation governing the default surcharge was found in section 59 VATA. Section 59 was in the following form:
(1) Subject to subsection (1A) below if, by the last day on which a taxable person is required in accordance with regulations under this Act to furnish a return for a prescribed accounting period–
- the Commissioners have not received that return, or
- the Commissioners have received that return but have not received the amount of VAT shown on the return as payable by him in respect of that period,
then that person shall be regarded for the purposes of this section as being in default in respect of that period.
(1A) A person shall not be regarded for the purposes of this section as being in default in respect of any prescribed accounting period if that period is one in respect of which he is required by virtue of any order under section 28 to make any payment on account of VAT.
(2) Subject to subsections (9) and (10) below, subsection (4) below applies in any case where–
- a taxable person is in default in respect of a prescribed accounting period; and
- the Commissioners serve notice on the taxable person (a surcharge liability notice) specifying as a surcharge period for the purposes of this section a period ending on the first anniversary of the last day of the period referred to in paragraph (a) above and beginning, subject to subsection (3) below, on the date of the notice.
(3) If a surcharge liability notice is served by reason of a default in respect of a prescribed accounting period and that period ends at or before the expiry of an existing surcharge period already notified to the taxable person concerned, the surcharge period specified in that notice shall be expressed as a continuation of the existing surcharge period and, accordingly, for the purposes of this section, that existing period and its extension shall be regarded as a single surcharge period.
(4) Subject to subsections (7) to (10) below, if a taxable person on whom a surcharge liability notice has been served–
- is in default in respect of a prescribed accounting period ending within the surcharge period specified in (or extended by) that notice, and
- has outstanding VAT for that prescribed accounting period,
he shall be liable to a surcharge equal to whichever is the greater of the following, namely, the specified percentage of his outstanding VAT for...
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