Weekly VAT Update – 3 January 2017
Penalties dependent on whether surcharge liability notice was properly served on the trader
We do not usually cover penalty cases unless there is a particularly interesting point, and this is one such case. In this First Tier Tribunal case the trader appealed against penalties for late payment of five consecutive quarters VAT liabilities in which the penalties totalled c £5,000. The trader appealed on several grounds: reasonable excuse, the penalties were disproportionate and finally whether the surcharge liability notices had been served as required. The Tribunal deal first with the last point. With regard to properly serving the notices it was common ground that initially HMRC had to show:
(1) That the VAT was paid late; and
(2) That valid surcharge liability notices for the default periods were properly served on the appellant
If HMRC could show the above, then it was up to the trader to show that it did not receive them.
The Tribunal therefore examined all the evidence. HMRC showed that the notices were correctly addressed and said that they “would” have been sent to the trader. HMRC did not provide evidence that they “were” actually sent to the trader, just that they would have been sent. The trader accepted that it did receive some communications from HMRC but that it had not received the surcharge liability notices, and that such items would be dealt with by the lady who attended the hearing and not by her staff. She also adduced evidence that she had negotiated time to pay with HMRC and that the surcharge liabilities were not included because she was not aware of them and HMRC did not draw them to her attention. The Tribunal found the trader to be an honest, reliable and creditable witness, and favoured her evidence to that of HMRC.
The Tribunal declared that the appellant’s liability to the surcharges only arises if HMRC can show that valid surcharge liability notices for the default periods were served on the appellant, and they have failed to do this, and accordingly the Tribunal allowed the appeal. The condition precedent for the appellant’s liability for the surcharges had not been met. On the other two issues it was now not necessary to decide, however the Tribunal stated that it would have decided that the trader did not have a reasonable excuse and that the penalties were proportionate.
Dramatic EU Proposal to counter VAT fraud
The European Commission has proposed a dramatic temporary VAT change, having considered three possible options. Under the proposal, issued on 21 December 2016, member states would be allowed to introduce the domestic generalised reverse charge (termed GRCM) on all B2B transactions above €10,000, covering all sectors. Currently the reverse charge is for specific products that are often used in fraudulent supply chains such as computers, mobile phones and computer chips and components.
It is intended to counter intra EU VAT fraud, by removing VAT charges on intra community B2B supply chain transactions, the fraud on which is estimated to cost the EU c €50 billion per annum out of a VAT gap of c €160 billion, although the documentation also mentions that the compliance burden and compliance costs would be reduced. It would of course be scheduled to last only until 2022 when a new VAT regime, based on a VAT charge at destination rather than a VAT charge at origin is planned. The EU Parliament will consider the proposal and if appropriate send it to the European Council for ratification.