Scotland business

Irvine firm wins VAT appeal over recession

A North Ayrshire firm has convinced a tax judge that the harsh effect of the recession was a "reasonable excuse" for failing to pay a VAT bill on time.

Scrimsign Micro-Electronics Ltd faced default charges worth thousands of pounds after failing to make VAT payments before deadlines in 2012.

A tax tribunal judge has now ruled the firm should be exempt from the charges.

He said Scrimsign's late payments were due to "factors flowing from the general effects of the recession".

First-Tier Tribunal judge Gordon Reid QC said the company, founded in 1986, was "badly hit" by the global economic meltdown, losing around £10,000 in each of the two years leading up to December, 2011.

Surcharge notices

The Irvine-based family firm, which manufactures digital displays for the transport, health and financial industries, managed to stay afloat after securing credit agreements with some of its suppliers.

However, between July and December, 2012, the firm - which employs five people - was hit with three surcharge notices by HMRC for failing to pay VAT bills on time.

The company's managing director, Keith Scrimshire, contacted HMRC and explained that it was experiencing "severe financial difficulties" entirely attributable to the economic climate.

But tax officials refused to accept that the company had a "reasonable excuse" for late payment, as it had failed to show that its financial problems were caused by factors "outside its influence or control" and not just the "normal hazards of trade".

Mr Scrimshire told the tribunal that in 2010 the company's turnover was reduced by 50%, but it managed to continue trading.

Judge Reid said: "Cash flow was tight, the working week was reduced, he gave up his company car.

"Big customers were throwing their weight about by delaying payment beyond even the 60 days for which they began to stipulate."

He added: "The business was operating from day-to-day and there was no way of predicting whether his customers would pay timeously.

"He (Mr Scrimshire) pointed out that the VAT was always paid in full and was frequently only a few days late."

Elizabeth McIntyre, of HMRC, contended that "a prudent taxpayer would, in the circumstances described by Mr Scrimshire, have contacted HMRC and made suitable time to pay arrangements".

But Judge Reid said: "The effects of the recession have travelled far afield and have affected many businesses in many different ways at different times.

"In the present appeal, these effects seem to me to be somewhat different from the normal hazards of trade.

"I accept that Scrimsign was placed in difficult financial circumstances which arose because of a combination of factors flowing from the general effects of the recession."

The judge allowed the appeal and quashed the surcharges, worth about £3,000.

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