VAT – Default surcharge case
A recent VAT Tribunal case examined liability to the VAT default surcharge where an assessment issued by HMRC used the incorrect percentage.
In this case the taxpayer appealed against a default surcharge penalty imposed by HMRC. The appeal was not for the usual reasons such as a reasonable excuse for late submission of a VAT return or that the VAT due had been paid on-time. In fact, the taxpayer accepted that a default surcharge should have been levied by HMRC but appealed on the grounds that the notice of assessment used an incorrect percentage.
Default surcharges are based on a ‘specified percentage’ ranging from 2% to 15% for successive defaults. The taxpayer in this case was able to demonstrate that a surcharge that was issued at 15% was erroneous because 15% was not the correct ‘specified percentage’. HMRC later amended the ‘specified percentage’ to 10% and then again to 5%. The taxpayer contended that these amendments were ineffective in correcting the original default surcharge.
The Tribunal Judge ultimately agreed with the taxpayer confirming that the assessment was wrong from the outset and could not be amended.
This case will be of interest to businesses who have received default surcharge penalties where there were errors in the ‘specified percentage’ and any subsequent surcharge penalties which will also have used the incorrect percentage.