PROVING THINGS 19: PROVE SERVICE OR YOU COULD BE CAUGHT OUT

A regular theme of this series has been to examine how cases fail, in full or partially, because of the absence of evidence. This can be seen in a decision of the First-Tier Tribunal Tax Chamber in England and Wales Cricket Board -v- The Commissioners for Her Majesty’s Revenue & Customs [2016] UKFTT 348 (TC). It is an example of a failure to adduce evidence and an (unsuccessful) attempt to cure evidential omissions by the use of submissions.

“Ms Donnelly submitted that the entries meant that the letter had been posted no later than 20 June – but with all respect to Ms Donnelly, her submissions are not evidence.”

“… as this statement was not supported by any evidence, we have disregarded it.”

KEY POINTS

  • For a surcharge to be imposed a liability notice had to be served.
  • The Revenue did not adduce any evidence that the notice had, in fact, been posted.
  • The Revenue did not challenge the applicant’s evidence that the notice had not been received.
  • The surcharge was not, therefore, valid.

THE CASE

The Cricket Board were appealing against a VAT default surcharge of £106,602.  In order for the surcharge to be valid a surcharge liability notice (“SLN”) had to be served.

FAILURE TO PROVE SERVICE OF THE NOTICE

  1. It is not in dispute that the balancing payment was paid late, and the Appellants do not argue that they had any excuse for the lateness of the payment.  Mr Mannie stated in his evidence that there were sufficient funds in the Appellants’ bank account to have paid the balancing payment on the due date – shortage of funds is not in issue. The Appellants’ only ground of appeal is that there is no liability to a default surcharge because they did not receive a SLN in respect of an earlier default.
  2. Included in the bundle of documents was a copy of a SLN dated 19 June 2014.  We note that normally HMRC do not keep copies of default surcharge notices, but exceptionally they are kept in the case of taxpayers within the POA regime (as was the case here).  The SLN was generated in relation to the VAT period 04/14.  The Appellants submitted their VAT return for that period electronically and on time, and made their second payment on account and balancing payment on time.  However it is not disputed that the first payment on account for that period was received by HMRC 11 days late.
  3. There was included in the bundle of documents a print-out of entries in the electronic ledgers of HMRC.  Ms Donnolly drew our attention to the following two entries:
Date Period Description S/Code Reference
20/06/14 SLN EXPIRY DATE AMD  443 40620901551
20/06/14 SLN EXPIRY DATE 443 30/04/15
Ms Donnelly told us that these entries meant that the SLN had been posted to the Appellant no later than 20 June 2014.
  1. The Appellants submit that the 19 June 2014 SLN was never received by them.
  2. Mr Mannie has been the management accountant for the Appellants since October 2000.  His responsibilities include the preparation and submission of the Appellants’ VAT returns.  He also has responsibility for the preparation and submission of VAT returns for eight other entities – being cricket boards of other countries who are VAT registered in the UK in respect of supplies made when touring in the UK.
  3. Mr Mannie stated that he had no recollection of ever having received the 19 June 2014 SLN.  He stated that even though the SLN did not impose any liability on the Appellant, it would have nonetheless have been treated seriously. Mr Mannie stated that he had reviewed his files and the 19 June 2014 SLN was not in them.
  4. In his evidence, Mr Mannie described to us the Appellants’ incoming post procedures, and said that all correspondence from HMRC would be distributed to his department and given to him.
  5. Mr Mannie also stated in his evidence that there were examples of other correspondence from HMRC not being received.  He gave as an example the POA schedule for the return periods 07/14 to 04/15, apparently sent by HMRC to the Appellant on 21 April 2014.  Because this notice had not been received, Mr Mannie telephoned HMRC on 30 June 2014 to obtain confirmation of whether the Appellants were still in the POA regime and, if so, the amounts due.  Mr Mannie recorded the amounts, and requested that a copy of the POA schedule be sent to him.  No such copy, despite further requests on 30 July 2014 and 30 September 2014, was ever received.
  6. Mr Mannie also referred us to a letter from HMRC dated 10 November 2015 cancelling a default surcharge raised in error.  Yet the surcharge to which that letter relates was never received by the Appellants.  Mr Mannie mentioned other instances of HMRC correspondence not being received.
  7. Ms Donnelly cross examined Mr Mannie, but did not challenge his evidence that the SLN had never been received by the Appellants.  In her closing submissions she made much of the fact that the missing correspondence referred to in Mr Mannie’s evidence all had some connection to the period in which the default occurred.  But in the light of the fact that she had not challenged Mr Mannie’s evidence that these items of correspondence had not been received, we considered that her submissions were largely irrelevant.
  8. Ms Donnelly also told us that HMRC had no record of the SLN having been returned undelivered by the Post Office – however there was no documentary evidence in the Bundle to support this assertion.
Discussion
  1. It follows from the decision of the High Court in Medway that if the SLN had not been served, then HMRC have no power to levy a surcharge.
  2. As HMRC’s submissions in relation to factual matters were for the most part unsupported by any evidence, and as HMRC did not challenge the Appellants’ evidence that the SLN had not been received, it inevitably follows that the appeal must succeed.
  3. Section 98 VAT Act 1994 allows for SLNs to be served by post.  Section 7, Interpretation Act 1978 provides that service by post is effected by properly addressing, pre-paying and posting a letter containing the document, and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.  It is for HMRC to show that the SLN was properly addressed and posted pre-paid.  If it does, then the SLN is treated as served at the point in time when it would have been received by the Appellant in the ordinary course of post – unless the Appellant can prove otherwise.
  4. We are satisfied, and find, that the SLN was produced by HMRC and was properly addressed to the Appellant.  However there was no evidence before us that the SLN was posted pre-paid to the Appellant.  It is unclear what inferences can be drawn from the entries in HMRC’s computer ledgers, and there is no evidence before us that explains the entries.  The entries do not state on their face that the SLN was posted.  The fact that the entries are dated 20 June (after the date of the SLN) suggests to us that they are not a record of the SLN being posted.  Ms Donnelly submitted that the entries meant that the letter had been posted no later than 20 June – but with all respect to Ms Donnelly, her submissions are not evidence.
  5. HMRC therefore fail at the first hurdle as they have no evidence of the posting of the SLN.  On the basis of the evidence before us, we find that the SLN had not been posted to the Appellant.
  6. But even if our finding that the SLN had not been posted is incorrect, there is the unchallenged evidence of Mr Mannie that the SLN had not been received.  Although s7 Interpretation Act 1978 makes provision for service to be deemed to occur when the SLN would have been received in the ordinary course of post, this is subject to the proviso “unless the contrary is proved”.  The Appellants’ unchallenged evidence was that the SLN had not been received by them, and this evidence is corroborated by examples of other correspondence from HMRC not being received (and again this evidence was unchallenged by HMRC).  We therefore find that the Appellants have proved “the contrary”, and that the presumption as to service in s7 does not apply.  Even if we are wrong in our finding that the SLN had not been posted, we find that it had not been received by the Appellants, and had therefore not been served on them.
  7. We also note Ms Donnelly’s statement that HMRC had no record of the SLN having been returned by the Post Office as undelivered.  But as this statement was not supported by any evidence, we have disregarded it.
Conclusion
  1. Following the decision of the High Court in the Medway case, for a taxpayer to be liable to a default surcharge, it is essential that they have previously been served with a SLN.  Given our findings that the Appellant had not been served with an SLN by HMRC, the surcharge under appeal cannot stand.
  2. The appeal is therefore allowed.”

     

    RELATED POSTS

    Proving things

     

 

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