Company fined £297,845 for paying VAT one day late

We have often warned our readers of the importance of submitting and paying VAT returns in a timely manner. In a recent article we wrote that it is imperative that VAT returns are submitted and paid on time as a delay of even one day can have significant consequences in the future. Unfortunately, a company by the name of Global Switch Ltd does not appear to have taken heed of our warning.

A recent First-Tier Tribunal case examined an appeal by Global Switch Ltd against a penalty for a late final payment on account of VAT for the quarter ending 30 September 2016. The penalty relates to what is known as the default surcharge regime.

A VAT default surcharge is a penalty levied on businesses that submit late VAT returns. The default surcharge penalty was levied at the second highest 10% rate. The VAT payment was due on 31 October 2016 and was made one day late on 1 November 2016 resulting in a VAT default surcharge of £297,845.

The taxpayer appealed on two grounds. Firstly, arguing that there was a reasonable excuse for an earlier late payment in relation to the period ending 31 December 2013. The Tribunal was clear‘that the mere fact that a mistake is honestly and genuinely made is not sufficient in and of itself for the mistake to amount to a reasonable excuse’. There are exceptions where a business can have a reasonable excuse for submitting a late VAT return, but the criteria is limited and was not met in this case.

The taxpayer’s second argument was that the surcharge levied was not proportionate to the gravity of the infringement. Unfortunately for the taxpayer, there has been much case law looking at this specific issue and the Tribunal was clear that it would be very difficult to identify when such an appeal would be successful. The taxpayer had continued to file late VAT returns since their first default in June 2012 and had remained within the default surcharge period becoming liable to ever increasing penalties with each default.

This case serves as a further warning to taxpayers to ensure that VAT returns are submitted and paid on time as a delay of even one day in making a payment or submitting a return can have ramifications far into the future.


Case Studies

The Tax Man

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Business Valuation in Distress

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FD in The Cupboard

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.