Tribunal issues VAT default surcharge ruling
Pub Date
Value Added Tax

HMRC imposes a VAT default surcharge 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. The normal deadline for submission of a VAT return and making payment is one calendar month and seven days after the end of the relevant VAT quarter.

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 up to a maximum of 15% with each default.

In April 2016, the First-Tier Tribunal heard an appeal by BW Hills Limited following receipt of a default surcharge of almost £25k based on 15% of the VAT due. The taxpayer had asked HMRC for a time to pay agreement before the payment deadline for the VAT return in question. HMRC had initially refused to accept the request but agreed after the due date for the VAT return and after the default surcharge had been levied. The taxpayer appealed the default surcharge.

The Tribunal considered the government’s 2008 announcement regarding the introduction of the Business Support Package as crucial in deciding whether the taxpayer was liable to pay the default surcharge. As part of this package, it was announced that HMRC would not impose penalties or surcharges for late payments of tax in cases where the taxpayer approached them to discuss payment. The taxpayer argued that the company had complied with the terms of the TTP and that no default surcharge should be due.

The Tribunal decided that on this basis the appeal should be allowed and the default surcharge penalty was overturned. The Tribunal was clear that had the taxpayer relied on secondary arguments of whether they had a reasonable excuse for late payment or argued that the surcharge was disproportionate then the appeal would have failed.