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 to 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 with each default up to a maximum of 15%.
A recent Tribunal case examined an appeal by a taxpayer against a penalty for late submission of a VAT return for the quarter ending 30 June 2013. There was no dispute as to the quantum of the calculation for 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 failure to pay on time was a genuine and honest mistake. It happened because their Financial Controller was on holiday and the company was in the middle of changing accounting systems. HMRC argued that they had previously notified the company of the default surcharge regime and that the change of computer system was a foreseeable event. In addition, the holiday of the Financial Controller was not a surprise and arrangements should have been made to properly cover the absence.
The Tribunal in this case agreed with HMRC and the taxpayer’s appeal was dismissed. The Tribunal whilst having some sympathies for the taxpayer was clear that a‘reasonable excuse is normally an unexpected or unusual event, either unforeseeable or beyond the person’s control, which prevents him from complying with an obligation when he otherwise would have done.’