Tribunal default surcharge decision
A default surcharge is a penalty levied on businesses that submit late VAT returns. VAT registered businesses are required by law to submit their return and make sure that payment of the VAT due has cleared HMRC’s bank account by the due date.
There is no penalty for a first offence, however, a business that submits a VAT return late is issued with a surcharge liability notice that begins on the date of the notice and ends twelve months from the end of the latest period in default. If further VAT returns are submitted late during this period a penalty based on a ‘specified percentage’ ranging from 2% to 15% will apply. The penalty increases up to the maximum with each default.
A recent Tribunal case examined an appeal by a taxpayer against a 10% penalty for late submission of a VAT return for the quarter ending 31 August 2011. There was no dispute as to the calculation of the default surcharge, the appeal rested on whether the taxpayer had a reasonable excuse for late payment of VAT.
The taxpayer in this case argued that the illness of their accountant had resulted in the late payment of the VAT returns. The issue was complicated as the taxpayer continued to pay by cheque and was unaware of the possibility of making online payments. HMRC argued that the company was ultimately responsible for the timely submission and payment of VAT returns and that reliance on a third party is not an excuse.
The Tribunal sided with the taxpayer and confirmed that there was a reasonable excuse. The appeal was therefore allowed. The Tribunal took on board the fact that the taxpayer ‘honestly and genuinely believed that they had made the necessary payments on time’.