HMRC caught behind in cricket VAT case
A stiff VAT surcharge levied on the England and Wales Cricket Board (ECB) has been ruled a no-ball by the first tier tribunal (FTT).
An HMRC review decision late last year had upheld a £106,602 VAT default surcharge issued in June 2015. The ECB contested this charge, stating that a 'surcharge liability notice' (SLN) had not been received by them.
The ECB used the 'payment on account' (POA) regime. Under this regime, the cricket board paid a VAT liability three days late. Section 59A VAT Act 1994 applies to POA. This law provides that a default surcharge may arise if the taxman does not receive a payment by the due date.
But the law - sections 59A(2)(b) and 59A(4)(a) - also provides for “the service of surcharge liability notices”.
In a witness statement, Harvey Mannie of the ECB, told the tribunal 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,” read the judge’s summary.
In its argument, the ECB submitted SLN was never received by them, and if it was never received, then no surcharge can be levied.
The ECB’s case rested on a precedent set by Customs and Excise Commissioners v Medway Draughting and Technical Services Ltd  STC 346. In the case, Medway’s appeal was on the grounds that it had not received any SLN prior to its default, and it was therefore not liable to a surcharge.
“The VAT and Duties Tribunal (at first instance) found that the SLN had been posted by Customs,” read the judge’s summary, “but also found that Medway had not received it in sufficient time to ensure that it did not default in respect of the return for the period under appeal.”
Mannie was cross examined by the HMRC officer present, but at no point did they challenge Mannie’s claim that the SLN had never been received.
As such, the judge was dismissive of HMRC’s arguments. “[The officer] 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.”
The judge stated that 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.”
The tribunal was satisfied that the SLN was drafted and addressed correctly – but, crucially, it was not sent pre-paid.
“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, 5 the surcharge under appeal cannot stand.
“The appeal is therefore allowed.”