Elderly taxpayer wins VAT tribunal due to poor memory

An elderly man with poor memory had a reasonable excuse for sending his tax return late, a tribunal has ruled.

Michael Selway, who is 78 and managing director of Award Framers International Limited (Award Framers International Limited v HMRC) argued that a penalty of £1,127 for paying VAT three days late was disproportionate.

Selway said that the late filing of the VAT return and payment of tax was due to a “genuine mistake” about when the financial quarter ended, and his poor memory.

When he realised his mistake...

Continued...

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Comments
BrettB's picture

Really?    2 thanks

BrettB | | Permalink

Presumably HMRC will fight this preliminary decision to the end to avoid opening the floodgates to taxpayer appeals on the grounds of "having a bad memory"?

 

At what point does age become a persuasive factor?  I'm certainly nowhere near 78 years old, but would argue that I have as bad a memory as any pensioner!!

What an idiot.  Is this the    1 thanks

annualpanic | | Permalink

What an idiot.  Does Dr Kahn show the typical calibre of a first-tier tribunal judge?

"penalty of £1,127 for paying VAT three days" - why no high    2 thanks

ringi | | Permalink

Why was the penalty so high?

It does seem rather disproportionate to me.

Not the first late return    3 thanks

djbrown | | Permalink

Why so high?

It would appear to be a 15% penalty, for the 5th late return - well, at least 5 late returns. 

 

First time offender?    1 thanks

aocarroll | | Permalink

If Mr. Selway had not filed returns late in the past then why shouldn't he have been forgiven for a one time lapse?

I think Dr. Kahn should be commended for following the judgement of Solomon.

VAT penalty    3 thanks

andreapt | | Permalink

Unfortunately, this gentleman seems to know how to play the game and has won hands down. £1127 is 15% of the original VAT owed. This level of penalty only gets levied on 5th and subsequent late filings or payment.

Anyway, where is his accountant or bookkeeper in all this? Are they suffering memory issues too??

 

 

 

 

johnjenkins's picture

I think the Judge    2 thanks

johnjenkins | | Permalink

is trying to bring a bit of common sense and flexibility in this penalty orientated regime.

Possible onset of Dementia?

kenatnam | | Permalink

Dementia can creep up on you at any age from the 30's, but more so in the over 60's. One day you are normal, the next you have forgotten to do something that you have done for years & years. I'm not saying that Dementia is involved in this case, but it has a 25% chance of being.

Lets not be hasty and blame the 78 year old, instead ask why the penalty is so high for a first offence, why HMRC are so intransigent, why HMRC feel themselves to be above Ageist legislation?

We don't accept blindness in a driver, but what if a driver goes blind over time? Then we expect them to own up and give up driving. The same with memory loss due to old age, or worse Dementia. An understanding of growing old and the problems that come with it is needed because funnily enough it is coming to all of us.

 

A problem with early stages of dementia is that the person knows something is happening, but not what, and resists admitting it, even to the point of becoming angry.

 

If we are a caring society then we should expect HMRC to take the same stance, and put in place mechanisms for dealing with the elderly - after all if we are good enough to be taxed aged 78 then we should be treated accordingly, and if the Government legislate to allow us to work as long as we wish then we should applaud those who do work on, not nit pick when age related problems crop up.

 

Dr Kahn got it spot on. HMRC need to listen instead of appeal.

leshoward's picture

Tribunal Decision    2 thanks

leshoward | | Permalink

I think the decision is unusual. HMRC do not need to Appeal it, as First Tier decisions are only persuasive precedent, not binding precedent. So no floodgates of forgetful taxpayers!

The penalty was certainly not disproportionate. The bar is set very high for that to be argued.

A modest investment with his local Accountant or friendly bookkeeper will assist the taxpayer in future. It will be cheaper than more Default Surcharges!

Stop IR35 for pensioner workers not registered for VAT could ..

dstickl | | Permalink

Stop IR35 for pensioner workers not registered for VAT could .. in my opinion ... help HMRC avoid this sort of "poor memory" problem now in HMRC's in tray, because of the following benefits:

(A) stave off dementia for some OAPs,

(B) save some NHS costs, and

(C) reduce the "GDP output gap" that HMG and HMT keep going on about.

It could even also raise some taxes for HMRC, HMT and HMG, such as: Corporation Tax (often dodged by some offshore parented companies), and Income Tax, etc.

Unless I'm suffering from a bad memory already - and perhaps an onset of dementia - I seem to re-call a wonderful e-petition on this topical subject, that has at least 20 signatures ...

Poor memory?    1 thanks

sallycox | | Permalink

One might wonder if, as Mr Selway's memory is so poor, he is a fit person to be running a business in the first place.

I am 61 and my memory is certainly not as good as it used to be, so I put reminders on the calendar for important dates - simples!

Not a reasonable excuse to my mind.

I agree with Harold Fisher    1 thanks

Harriet Enthoven | | Permalink

I agree with Harold Fisher

' If you can't stand the heat, then get out of the kitchen......

Then some kind family member or friend might suggest to the central figure that it was past the time to pass on the running of the business, and retire.

We don't generally accept blindness in a driver, I hope, as an excuse for causing a road traffic accident.... we legitimately make people accountable for their  actions as adults. If we hold ourselves out as adults, then we pay the associated costs.'

 

Where is his Accountant?    1 thanks

arnold28 | | Permalink

Do you send reminders to all your clients when their VAT Returns are due and then follow them up to make sure they have been submitted?

mydoghasfleas's picture

Too many presumptions

mydoghasfleas | | Permalink

Some correspondents seem to think the taxpayer has worked the system; others believe he was genuinely forgetful; others assume he's too old and beset by Alzheimers.  All seem to kicking off on their own agenda.

Has anyone seen the full report of the case and read it or is it all shooting from the hip?

I do not know the background but think it very unusual that forgetting to do something is a reasonable excuse; there must have been something in the evidence that was very persuasive for the appeal to succeed, which is not apparent from the headline or article.  Not having read the case report, I have no opinion on the appelant or judge.

 

DMGbus's picture

HMRC VAT return reminders    1 thanks

DMGbus | | Permalink

HMRC do issue VAT return filing reminders, but unfortunately they are typically issued one week before the quarter end rather than closer to the deadline.  

Now an elderly business person might or might not regularly review his/her eMails, but really should, so HMRC are good on this point, eMail is the accepted norm for any business nowadays.

Personally I'd like to see TWO eMail reminders per return issued by HMRC - one as at present (or maybe better last day of VAT quarter rather than a week before q/e which can be confusing) to allow planning around holiday leave plus a follow up eMail closer to the deadline (say 7 to 10 days before the deadline).  

The level of penalty suggests multiple defaults, so this individual has genuine memory issues as found by the FTT.    The penalties, in their present form, are fairly generous in application and context and nothing to be criticised in this respect from my viewpoint.    This taxpayer needs help and it is my understanding that HMRC do (claim to) offer help to small businesses when they make a first VAT return default. 

This guy has most definitely been...    1 thanks

squillachi | | Permalink

framed!

(slow day)

Three days VAT delay,    1 thanks

mikerc1 | | Permalink

 

15% for three days lateness and (apparently) no HMRC concession for his voluntary and prompt action when realisation dawned.  A couple of hundred quid would have made their point well enough.  The "miscreant" would probably have paid without the expense (to HMRC - that means all of us) of a Tribunal, and put a note on his calendar for the next quarter's return.

Disproportionate?  Without more facts - unquestionably! 

Mike

__________

 

penalty regime at fault    2 thanks

Arcadia | | Permalink

The level of penalty for the 'crime' committed is the problem here. The penalty regime is nothing more than a cynical attempt to gouge the captive taxpayer rather than focus on those who avoid their taxes. So what if this taxpayer has sent his VAT return in late 5 times? Where is the loss to the Revenue? Interest on late paid tax is sufficient commercial recompense to the public purse, without penalties that escalate out of all proportion to the seriousness of the offence. If a criminal act such as speeding say, which involves risk to life and limb, attracts a fixed penalty of £100, or whatever it is, how on earth is if fair for Mr Selway to be charged £1,127 for being late with a piece of bureaucracy?

Late but forgot    2 thanks

philfromleeds | | Permalink

Mr Selway is my hero. He is doing what the government wants and that is working till ones death. I hope all the government ministers will need to work till their deaths.Brain cells start dieing in a healthy brain from the early 60's. If one has had a heart attack and needed resussitaing brain cells have died. You would be suprised to know how many people are working with failing health. The Tribunal Judge is being a truthfull man recognising the FACTS of the case. Mr Selway at 78 can't have a brain like he had at 58, it would be a medical imposibility. VAT in fact stands for Vare And Tear. It is taking a great toll on many businesses. 

Late

HUGH W DUNLOP | | Permalink

It would seem that his memory was not to poor to allow him to have an amount of over 37 and a half thousand pounds on which to pay VAT. (VAT on Sales less VAT on purchases). Would that some of us had this amount of VAT to pay.

Harsh    2 thanks

taxbakbristol | | Permalink

It may not be big money to some of you posting but to me that sort of penalty is  a great deal of money...........maybe the man has no pension and must work to live a reasonable life .Maybe he poured his pension money in a pension company that promised good returns but went belly up.........I am sure you recall the company.

Lets have a bit of charity here. After all he is an unpaid tax collector !!

stepurhan's picture

Partial bad memory    1 thanks

stepurhan | | Permalink

dstickl wrote:
Unless I'm suffering from a bad memory already - and perhaps an onset of dementia - I seem to re-call a wonderful e-petition on this topical subject, that has at least 20 signatures ...
There was an e-petition that got exactly 20 signatures on the subject. As many other members pointed out at the time, it was not a wonderful petition. Raising this subject again is not going to change that.

For those that missed it first time around, the discussion of why this was an ill-conceived idea can be found here.

The thing that strikes me about this case is, as others have pointed out, he must have been a serial late filer to get this level of penalty. In isolation, that level of penalty for being three days late seems harsh. In light of the other failures, it seems like a not unreasonable escalation of penalties against a repeatedly dilatory taxpayer.

Having looked at the judgement from the link at the top of the article there seems to be no mention of the previous failures. This leads me to believe that the judge was unaware of the previous failures, and made judgement solely on the basis that this single penalty seemed excessive. I hope that this is carried higher, and that the fact of the previous failures is highlighted. Perhaps then a repeat offender will be held to account for that.

EDIT: Actually reading more carefully, there is a single sentence mentioning he had previous defaults. Still not clear how severe those defaults were, or whether the judge was made aware that the level of penalty in this case was affected by the repeated defaults.

April 1st!

dstickl | | Permalink

GOTCHA, on 1st April, because ... 

stepurhan wrote:

dstickl wrote:
Unless I'm suffering from a bad memory already - and perhaps an onset of dementia - I seem to re-call a wonderful e-petition on this topical subject, that has at least 20 signatures ...

 ... There was an e-petition that ... 

... is still open, is running until next October, and which has more signatures now than the number of people who wrote against it back then - apparently (in my opinion) in some cases - because (A) they feared the risk of the possibility of losing some practice revenue from IR35 compliance "work" more than (B) they encouraged the opportunity of the possibility of gaining extra practice revenue from Corporation Tax and/or Income Tax reporting !  

BTW: The Appellant states:

 “In the past 12 months we have previously submitted both our

returns and the resulting payment before the due dates.”

stepurhan's picture

Still not relvant or wonderful

stepurhan | | Permalink

dstickl wrote:
GOTCHA, on 1st April, because ... 

Quote:
... There was an e-petition that ... 

... is still open, is running until next October, and which has more signatures now than the number of people who wrote against it back then - apparently (in my opinion) in some cases - because (A) they feared the risk of the possibility of losing some practice revenue from IR35 compliance "work" more than (B) they encouraged the opportunity of the possibility of gaining extra practice revenue from Corporation Tax and/or Income Tax reporting !  

BTW: The Appellant states:

 “In the past 12 months we have previously submitted both our

returns and the resulting payment before the due dates.”

Not really. Nothing that you said was funny, and whilst I referred to the e-petition in the past tense, you didn't so you weren't even misleading, a basic requirement of April Fools.

You have 20 signatures after nearly six months. Even if that is more than the people who could be bothered to respond to your increasingly hostile defence of your petition, that is still hugely underwhelming. As for your A and B reasons for people objecting, I will leave others to read the linked thread and draw their own conclusions about how inaccurate a depiction of the objections those are.

Your e-petition is also not relevant to this story (which is about VAT, not IR35), so you are at best derailing it to reinstate your personal agenda. If you want to carry on about IR35 again, this is not the place to do it.

With regards to the case in hand, the appellant does indeed state that they submitted returns and paid on time in the last 12 months. However, the decision is not that the VAT surcharge should have been reset to a first default, but that this particular instance was a genuine error and no penalty should have been imposed at all. Though it is impossible to tell without the full report, the fact that the decision does not reset the penalty to a first default implies that they were mistaken (giving them the benefit of the doubt, perhaps they were outright lying) about that. I would note that the introduction states that they had been in the default penalty regime from 02/07 onwards, so this is not a recent issue either. Either this man is playing the system, or he is no longer competent to be running a company. Either way, this decision is most unsatisfying based on the facts to hand.

The heart of the matter -

dstickl | | Permalink

The heart of the matter - in my opinion: From an HMG/voter perspective, to reduce UK's "GDP Output Gap", should (A) the UK tax system recognise the realities of UK's different workers, or should (B) some UK workers cease to work in UK because they don't fit the UK tax system?

DR K KHAN, TRIBUNAL JUDGE, plumped for A.     Good call.

stepurhan's picture

Recognised what

stepurhan | | Permalink

Let me repeat that sentence from from the introduction to the judgement verbatim

Judgement introduction wrote:
The Appellant has been in the default surcharge regime from the period 02/07 onwards.

This is not a person that made a one-off mistake, this is a person that has been making late filings/payments for SIX AND A HALF YEARS prior to this incident. I would be interested in how many actual incidents there were, as they don't have to have failed every time to stay in. Just at least once within a year of the last incident. This is still someone that should have had enough experience of the penalty system to know better.

So, in saying that the judge made a good call by recognising "the realities of UK's different workers" you are saying being a serial late-payer is perfectly fine. I think you will find 30 days to be the typical terms for most businesses. Looked at it from a credit terms point of view, VAT is paid 37 days after the end of the relevant period, so already better than standard terms. But if you take into account that any sale (or receipt for those under cash accounting) creates an obligation to account for that VAT (subject to input deductions) it gets worse. The VAT for a sale on the first day of a quarter doesn't have to be accounted for until 1 month and 7 days after the quarter end. Treating a month as 30 days, that's credit terms of 127 days! Know many businesses that would accept that as a norm?

Speaking from a business point of view, I don't want customer that consistently fails to meet even exceptionally generous credit terms. Such "different workers" are more than welcome to leave the UK if paying on time is such an issue.

Some SME's have to put up with such late payers in UK ...

dstickl | | Permalink

stepurhan wrote:

... Treating a month as 30 days, that's credit terms of 127 days! Know many businesses that would accept that as a norm? ...

Some SME's have to put up with such late payers ...

stepurhan's picture

So what    1 thanks

stepurhan | | Permalink

dstickl wrote:
Some SME's have to put up with such late payers ...
So that makes paying late just an acceptable everyday part of business then? Because paying out late is "common business practice" then someone who has been penalised for repeatedly this practice should be applauded for getting that penalty overturned?

Why stop there? Shop-lifting is common practice, so why should shop-lifters be prosecuted? After all, many SMEs have to put up with people shop-lifting so it must be perfectly fine to do so.

You may argue that there is no actual loss to anyone from someone paying late. I suggest you tell that to all the owners of businesses that have gone under because late-paying customers have screwed up their cash-flow. Are you really saying that people who pay their bills when they are due deserve to go under because their customers don't show the same level of integrity?

It's April 2nd ...

dstickl | | Permalink

I was asked a question & I politely answered: Some SME's have to put up with [it] ...

stepurhan's picture

Why should they though    1 thanks

stepurhan | | Permalink

dstickl wrote:
I was asked a question & I politely answered: Some SME's have to put up with [it] ...
But why should anybody have to put up with late payers, be it SMEs or HMRC? There is no argument whether the amount involved was due or not, just over it being paid later than it should.

You have come out in support of this man getting a penalty overturned that can only have arisen because he has repeatedly failed to meet his obligations. Even being generous, he has to have failed to file and pay on time no less than six times before this incident. That is the only way he could have been in the penalty regime since 02/07. The real number of failures could actually be much more than that, of course.

You will no doubt say that the penalty is excessive. To that I would say, what else can HMRC to do? Any other supplier could simply refuse to do business with someone that refuses to pay on time. HMRC don't have that option, so a penalty system (that only really bites when someone persistently fails) is really their only alternative.

So, I will ask again, do you think failing to pay on time, with all the cashflow consequences for the unpaid creditor, is an acceptable way of doing business? Effectively saying "it happens" is not an answer. There are a lot of things that happen in the world that shouldn't. Do you genuinely believe that creditors should be able to take as long as they like to pay with no consequences? If not, why are you acting as if a man who has repeatedly failed to pay on time is somehow in the right?