Default Surcharges and Reasonable Excuse

Caligor RX Limited (“Caligor”) appeal against a default surcharge of approximately £35,000 issued by HMRC that was imposed due to the late payment of an amount due from the businesses VAT return whilst a surcharge period was already in place.

The default related to the period ending 12/14 the return for which was due by the 7th February 2015 and the corresponding payment was due on or before the 10th February 2015 by way of the 3 day extension for payments made by direct debit. The return was submitted on the 4th March 2015 with the payment reaching HMRC 5 days later on the 9th March.

Caligor appealed the issue of the default surcharge on the grounds that due to an unforeseen IT failure, the businesses accounts were inaccessible for an extended period of time and the VAT return was submitted as soon as the accounting system was fixed. Caligor supplied HMRC with an invoice relating to work required to fix the issue that prevented the business from submitting the return as proof of the problem.

HMRC have the power not to impose default surcharges in cases such as this if they deem the taxpayer to have reasonable excuse. The First-Tier Tribunal therefore assessed whether Caligor has reasonable excuse for the late submission of the VAT return for the period ending 12/14 as well as the late payment of the VAT due arising from the return.

Caligor’s appeal was rejected and the default surcharge was upheld on the basis that, at no point during the period between the 7th February, when the return was due, and the 4th March, when the return was submitted, did the business contact HMRC to attempt to discuss the issue or arrange a time to pay agreement, nor did they submit an estimate of the figures on the return within the time limits that would have served to, at the very least, reduce the surcharge issued.

If you have been issued with a default surcharge and are unsure over what course of action to take or require assistance in arranging a time to pay agreement with HMRC, call our free VAT helpline for expert advice.

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