A VAT registered company, Swanfield Limited, which also had three associated companies, entered the default surcharge regime during 2009 when it failed to pay a number of VAT returns at the correct time. HMRC subsequently assessed the companies for a number of default surcharges, which totaled in excess of £290,000. The assessed amounts  would have been reduced if HMRC had allocated the payments that the companies had made to the most recent VAT debts, rather than to old amounts that had already been the subject of a default surcharge penalty.  The Upper Tribunal held that the taxpayers were entitled to allocate its payments to the amounts that would become due on sales in the current VAT period, even though the due date had not yet arrived. The key point is that HMRC do not have the power to allocate payments to historical liabilities to any VAT return, where the taxpayer has explicitly made those payments in relation to a current VAT return. However, there was some doubts as to whether or not the taxpayer had actually allocated the payments in question to current VAT returns and thus  the Upper Tribunal has passed the case back to the First-tier Tribunal for hearing.  This case highlights the importance of ensuring that VAT returns and payments are made on time once a business has entered the default surcharge regime (even if a historical debt already assists). If you or any of your clients have received multiple default surcharge penalties, please call our helpline to discuss the position.

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