“(1) For the purposes of any provision of sections 59 to 70 which refers to a reasonable excuse for any conduct – (a) An insufficiency of funds to pay any VAT due is not a reasonable excuse;”
“the reason must in my judgement amount to something more than that the business of the taxpayer has been carried on unprofitably or that conditions of trade produce cash flow problems. It is the statutory duty of traders to make value added tax return and pay value added tax in due time. They are not relieved of that duty by the unprofitable or barely profitable nature of their businesses. If the conditions of business produce cash flow problems it is their duty none the less to make financial arrangements that will enable their value added tax to be paid on time.
“I remain of the view which I expressed in Salevon that as a general rule one can trust the commissioners and the tribunal to determine whether in any given case, and having regard to the scheme of the legislation including [section 77(1)(a)], a reasonable excuse for non payment exists. I would not accept that the reasonable excuse must necessarily involve the wrongful act of another person. My references in Salevon to the wrongful act of another and to the distinction between the trader who lacks the money to pay his tax by reason of culpable default and the trader who lacks the money by reason of unforeseeable and inescapable misfortune were directed to the facts of that case. They cannot be regarded as an all purpose test of what constitutes reasonable excuse. The test is to be found in the words of [ the relevant sections ] read in the context of the statutory scheme for the collection of value added tax. As a general rule this scheme has a highly beneficial effect on the cash flow of traders.”
“I would add however that in my view the cases in which a trader with insufficient funds to pay the tax can successfully invoke the defence of reasonable excuse must be rare. That is because the scheme of collection which I have outlined involves at the outset the trader receiving (or at least being entitled to receive) from his customers the amount of tax which he must subsequently pay over to the commissioners. There is nothing in law to prevent him from mixing this money with the rest of the funds of his business and using it for normal business expenses ….. and no doubt he had every commercial incentive to do so. The tax which he has collected represents, in substance, an interest free loan from the commissioners. But by using it in his business he puts it at risk. If by doing so he loses it, and so cannot hand it over to the commissioners when the date of payment arrives, he will normally be hard put to it to invoke [sub-s 59(7) VATA]. In other words he will be hard put to persuade the commissioners or the tribunal that he had a reasonable excuse for venturing and thus losing money destined for the Exchequer of which he was the temporary custodian.”
“Scott LJ on the other hand is of the opinion that the underlying cause of the insufficiency of funds must be an unforeseeable or inescapable event. I have come to the conclusion that this is too narrow in that (a) it gives insufficient weight to the concept of reasonableness and (b) it treats foreseeability as relevant in its own right, whereas I think that “foreseeability” or as I would say “reasonable foreseeability” is only relevant in the context of whether the cash flow problem was “inescapable” or , as I would say, “reasonably avoidable”
“Our conclusion, therefore, is that with the possible omission of an upper limit on the penalty which may be imposed, the regime viewed as a whole does not suffer from any flaw which renders it non–compliant with the principle of proportionality in the sense that it, or some aspect of it, falls to be struck down.”
“applying the tests we have described, the absence of any financial limit on the level of a surcharge may result in an individual case in a penalty that might be considered disproportionate. In our judgement, given the structure of the default surcharge regime, including those features described in Total Technology , this is likely to occur only in a wholly exceptional case, dependent upon its own particular circumstances Although the absence of a maximum penalty means that the possibility of a proper challenge on the basis of proportionality cannot be ruled out, we cannot ourselves readily identify common characteristic of a case where such a challenge is likely to succeed.”
“Having regard to the need, in order to preserve the fiscal neutrality of the VAT system, to enforce prompt payment of VAT collected by a taxable person, a penalty of 2% cannot be regarded as so disproportionate to the gravity of the infringement as to constitute an obstacle to the underlying aim of the directive. Nor can the surcharge be regarded as disproportionate by reference to the Convention. It has been arrived at by the application of a rational scheme that cannot be characteristics as devoid of all foundation. The penalty might be considered harsh, but in our view it cannot be regarded as plainly unfair.”