Levi Solicitors LLP v Revenue & Customs [2011] UKFTT 727 (TC)
[1]in respect of the default surcharge raised in respect of the quarter 01/09 s108 does not apply and the surcharge of £4,359.88 is due[2]in respect of the default surcharge raised in respect of the quarter 10/09 s108 does not apply and the surcharge of £4,737.81 is due. The Appellant submissions29. The Appellant maintains that an agreement was reached between their accountants and HMRC on 28 January 2009 to the effect that the VAT and PAYE owed to HMRC by the Appellant would be put on hold until they had submitted a report with their client’s proposals, which would be not later than until 07 February 2009. The Appellant says that their application for a deferral clearly included the VAT liability for the period then ending, that is 01/09. On 6 February 2009 the accountants faxed a letter to HMRC asking that they telephone to further discuss matters and, in the letter, they indicate that the Appellant was looking for a further extension of time in which to provide a ‘meaningful proposition’. HMRC responded on 10 February 2009 asking the accountants to ensure that the report containing the Appellant's proposals reached them by 17 February 2009. The accountants responded by fax on 16 February 2009 to the effect that they were in the process of preparing a detailed report which would be ‘finalised by the end of February 2009’.30. The Appellant’s VAT return for the quarter ended 01/09 was e-filed with HMRC on 19th February 2009 and its TTP proposals were submitted on 20 March 2009, which included an offer to supply detailed financial projections. HMRC issued a corporate debt questionnaire which was completed and returned on 9 April 2009. The completed questionnaire shows that arrears amounting to £169,856.18 as at 31st March 2009 (which included the VAT due for the quarter 10/08 amounting to £82,658.57 and the VAT due for the quarter ended 01/09 amounting to £87197.61).31. The Appellant refers to the fact that, when its accountants first approached HMRC's BPSS on 27 January 2009, there followed a request by HMRC for a business report and the completion of a corporate questionnaire but that it was not until 7 May 2009 that HMRC refused the Appellant’s proposals for a TPPA. Eventually, following representations to the Board of HMRC and its Solicitor’s Office, an arrangement was finally agreed following the submission of revised proposals.32. The Appellant says that, from the time of first contact with HMRC on 27 January 2009 until the TPP arrangement was finally agreed on 6 January 2010, it was engaged in a single continuous process and that consequently all VAT periods falling within that period are outside the ambit of VAT default surcharges. The Appellant submits that to argue otherwise would be outside the spirit and intent of the principles underlying the Time To Pay Arrangement Scheme.33. The Appellant submits it cannot have been envisaged under the scheme relating to time to pay arrangements that such arrangements would be agreed at the point of first contact with HMRC because HMRC's business payment support service states that ‘ in larger payment debts and those that are more complicated we may have longer more detailed discussions before finalising payment arrangements ’. The Appellant therefore submits it is reasonable to assume that in those cases involving more complex or substantial amounts of VAT, there will inevitably be a time lag between the point of first contact with HMRC and the date when final agreement is reached on a TTPA. Conclusions34. HMRC's offer on 28.01.09 to defer further action until 09.02.09 and subsequent extensions were subject to the Appellant submitting acceptable TTP proposals. HMRC therefore indicated its willingness to consider deferment conditional upon acceptance of those proposals. These were received in December 2009 and agreed in January 2010. The VAT payable may not have been known at the time of the provisional agreement but the Appellant’s VAT return was filed on 19.02.09 well before the due date. Also, the TTP proposals which included VAT for 01/09 were submitted on 20 March 2009. This was of course after the return and the payment date of 07.03.09 but that was because the proposals had been in course of preparation and had to include the VAT for 01/09. There is a requirement that the request for a TTP a must be made before the due date for the return payment under s108(2)(b) but no similar provision relating to the period within which the TTP arrangement must be agreed. Otherwise, as the Appellant says, HMRC could protract negotiations and thereby potentially cause the trader to incur additional surcharges which would otherwise be excluded under the time to pay arrangement scheme.35. On the facts, the Tribunal accepts that on 28 January 2009 there was an agreement by HMRC to defer further action regarding VAT (and PAYE) owed by the Appellant and that the agreement was intended to include both the VAT then outstanding and the VAT for the quarter 01/09. The Tribunal does not accept however that there was a continuous single process from that time until the TTP was agreed, that had the effect of suspending the application of a surcharge for any period in which a payment fell due during the course of negotiations.36. The Appellant had made a request to HMRC implicitly or otherwise to defer the VAT payable for the period 01/09. HMRC’s Info Log entries show that HMRC was aware that proposals would be put to the Business Payment Support Unit requesting time to pay and that this was in part dependent upon the Appellant agreeing facilities with its bankers. Its VAT return had been e-filed on 19.02.09, that is, prior to the due date for filing on 07.03.09. There was clearly a continuous dialogue between the Appellant’s accountants and HMRC from 28.01.09 up to submission of the Appellant’s VAT Return for 01/09 on 19.02.09. It is therefore inherently improbable that the Appellant did not intend to include the 01/09 VAT in the deferral application,, Indeed the 01/09 quarter which was included in the proposals at HMRC’s request and submitted on 20 March 2009. Significantly, HMRC's Info Log Entries clearly confirm HMRC's acknowledgement that it would be necessary to remove the default surcharge raised for the period 01/09 once the TTP had been agreed. The deferral agreement was provisional upon acceptance by HMRC of the proposals contained in the TTP. Had the proposals not been agreed the late payment of VAT would remain subject to a default surcharge.37. It is irrelevant that, as at 29.01.09, being the time of the request for a TTP, the VAT for the 01/09 quarter was not known. The request was made almost at the end of the VAT quarter and the VAT due could have been readily estimated. s108(1)(c) does not contain a time limit within which HMRC must agree a deferral request and therefore the delay in reaching agreement did not preclude the Appellant from claiming the benefit of s108 (2). 37. The Appellant therefore met the requirements of s108(2)(b) Finance Act 2009 in respect of the VAT due for the quarter ended 01/09 and the surcharge imposed for that period amounting to £4,737.81 should be discharged accordingly.38. The Appellant accepts that a surcharge is due for the quarter ended 10/09 which they agree was not part of the TTPA. However, the quantum of the penalty due for that quarter will reduce to £2,368.90, representing a 5% default surcharge.39. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. TRIBUNAL JUDGE RELEASE DATE: 10 November 2011