In Dougs Maintenance Services Limited v HMRC [2020] TC07941, the FTT found that a delay by the appellant's bank in processing the payment did not constitute reasonable excuse for an appeal against a default surcharge penalty.
- The appellant company operates a property maintenance and repair business and is required to file VAT returns, electronically, on a quarterly basis.
- HMRC have the discretion to allow a further seven days with regard to the deadlines for electronic filing and payment.
- The appellant's VAT return history was as follows:
- For the period ended July 2019, the filing and payment date was 7 September 2019. The return was filed 2 September and the payment was received 9 September 2019.
- For the period ended October 2019, the filing and payment date was 7 December 2019. The return was filed 5 December and the payment was received 9 December 2019.
- A non-financial Surcharge Liability notice was served for the period ended July 2019. The default surcharge regime states that further defaults will be subject to penalties at 2%, 5%, 10% and 15% of the VAT payable for the second, third, fourth and fifth defaults.
- A default surcharge was issued at 2% (£1,597.13)for the period ended October 2019.
The company appealed on the basis of:
- Reasonable excuse: Payment had been made on 6 December using their bank's Faster Payment Scheme (with payment usually guaranteed within two hours). The payment was not processed until Monday 9 December. The directors of the company were unaware that there was a daily transaction limit for using the scheme, which had been surpassed.
- Unfair and disproportionate penalty given the nominal delay.
The FTT found that:
- Whilst the company had a good compliance history, the directors were aware of the payment deadline and the consequences of late payment.
- The earlier late payment had triggered the notice and the company should have investigated what had caused the late payment to ensure there was no repetition. The company held the belief that payment would have been that day, but having already had one delayed payment, there was no evidence provided as to why this was a sound belief.
- There were no grounds for reasonable excuse.
- The FTT had no jurisdiction to change the level of the penalty even if seemingly disproportionate and unfair. The penalty levels are set by legislation and based on the unpaid VAT.
Guides on this topic
Penalties: VAT
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How to appeal a tax penalty
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic? This guide summarises the process for appealing a tax penalty.
Grounds for appeal: Reasonable excuse
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Grounds for appeal - amount
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