The Commissioners for HM Revenue and Customs v Total Technology (Engineering) Limited
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Warren,Judge Bishopp |
| Neutral Citation | [2012] UKUT 418 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,29 November 2012 |
| Date | 29 November 2012 |
| Published date | 01 December 2016 |
[2012] UKUT 418 (TCC)
Appeal number: FTC/88/2011
VAT Default surcharge — penalty of £4,260.26 — whether disproportionate—
no — principles to be taken into account by Tribunal
IN THE UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND
CUSTOMS Appellants
- and-
TOTAL TECHNOLOGY (ENGINEERING) LIMITED Respondent
Tribunal: Mr Justice Warren, Chamber President
Judge Colin Bishopp, President of the Tax Chamber
Sitting in public in London on 10 and 11 July 2012
Peter Mantle instructed by the General Counsel and Solicitor to HM Revenue and
Customs, for the Appellants
Michael Matthews of Matthews Pulman, Accountants and Brian Phillips for the
Respondent
© CROWN COPYRIGHT 2012
DECISION
Introduction
1. This is an appeal from the decision of the First-tier Tribunal (Anne Redston
and Ian Perry) (“the Tribunal”) released on 15 July 2011 (“the Decision”). They 5 allowed an appeal by Total Technology (Engineering) Ltd (“the Company”)
against a VAT default surcharge of £4,260.26 for the quarter ended 30 June 2009
(“the Surcharge”) and discharged it. The Company’s VAT payment was received
one day late, on 8 July 2009 instead of 7 July 2009. There were two issues before
the Tribunal. The first was whether the Company had a reasonable excuse for the 10 late payment; the second was whether the Surcharge was disproportionate. The
Tribunal found against the Company on the reasonable excuse issue: that finding
is not challenged on this appeal. But the Tribunal found, in favour of the
Company, that the Surcharge was disproportionate. The Appellants (“HMRC”)
now appeal against that decision with the permission of Ms Redston.
15
2. The outcome of this appeal is of great importance to HMRC even though
the amount at stake in this particular case is not large. It is important because the
integrity of the VAT surcharge provisions is in issue, as will become apparent.
The appeal raises issues of EU law which are far from straightforward. We have
been referred to a considerable number of authorities both in our national courts 20 and in the European Court of Justice, now called the Court of Justice (being part
of the Court of Justice of the European Union), which we will refer to as “the
ECJ”. The law is complex.
3. Mr Peter Mantle appears before us on behalf of HMRC. Mr Michael
Matthews, of the Company’s accountants, appears on behalf of the Company. We 25 have also heard from Mr Brian Phillips, a director and shareholder of the
Company, who made some observations to which we will return at the end of this
decision. It is not reasonable to expect a non-specialist accountant like Mr
Matthews to have anything like the grasp of this subject which Mr Mantle has
with a well-resourced and well-informed team to assist him. We have done our
30 best to ensure that this disparity has not disadvantaged the Company. As a result,
we have produced a decision of greater length than might have been expected in
order to rehearse some, at least, of the arguments which could have been
presented by a properly instructed legal team equivalent to that deployed by
HMRC. We would have preferred it if it had been possible for representation to be 35 provided for the Company equivalent to HMRC’s representation. But,
understandably, the Company did not go to the considerable expense of obtaining
such representation (even assuming that it could afford to do so) in the light of the
sum at stake. This means that Mr Mantle’s arguments have been free from a real
challenge from an opposing advocate. 40
The facts
4. The relevant facts are set out in [4] and in [7] to [17] of the Decision. They
can be summarised for present purposes as follows:
3
a. The Company was on a quarterly accounting basis for VAT so that its
VAT return and the related payment were due on or before the end of
the month following each calendar quarter save that the Company
took advantage of the 7 days’ grace allowed for electronic payment.
b. The Company runs an employment agency. It has been trading since 5 1973 and has an excellent compliance record both in relation to direct
and indirect tax.
c. In 2001 Mr Dean Coughlan (who represented it before the Tribunal)
joined the Company. He purchased a new accounting system.
Between 2001 and 2008 the Company’s turnover grew by around 25% 10 a year. In the spring of 2009 the Company began working on a new
contract with the Department of Work & Pensions, which involved
significant extra work. One individual was responsible for the book-
keeping and accountancy.
d. Although no accounts were provided to the Tribunal, they were
15 informed that the Company made profits of around £50,000 a year,
achieving a profit margin of approximately 12%.
The VAT payments and defaults
e. The Company’s VAT payment history, so far as relevant to this
Appeal, is as follows: 20
Period to VAT due
£ Due date Paid by
due date
£
Paid
after due
date £
Rate of
surcharge Amount
£ No of
default
31/5/08 126,246 31/7/08 125,769 476 0% 0 1
30/11/08 108,957 7/1/09 108,626 331 2% 0 2
31/5/09 85,205 7/7/09 nil 85,205 5% 4260.26 3
f. As can be seen from the table, small adjustments to the total VAT due
were paid after the due dates in respect of the returns for the periods
ending May and November 2008. Mr Coughlan said that these arose
because of problems with the Company’s accounting system.
25
g. Because the payments of the small additional sums were made after
the due date, they were recorded as late payments.
h. Despite extensive negotiations with the Company’s software supplier,
it had been impossible to establish the cause of the problem and the
system was replaced.
30
i. So far as concerns the quarter ending in November 2008, the
surcharge fell below £400 and, in accordance with HMRC policy, was
not collected. But the surcharge had not been withdrawn in
accordance with the statutory provisions to which we come shortly.
5. The Decision does not reveal the number of returns submitted for each of
35 the first two periods. If the initial (under)payment had been accompanied by a
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