Polyteck Building Services Ltd v The Commissioners for HMRC
[2023] UKFTT 575 (TC)
Desser & Co Ltd v The Commissioners for HMRC
28 July 2023
[2023] UKFTT 662 (TC)
First-tier Tribunal
The company owed VAT and didn't pay on time. Even though they made payments, they didn't tell HMRC which debt to pay off first, so HMRC paid off older debts first. Because of this, the company still had unpaid VAT and received a penalty. The judge said this was allowed by the law.
Key Facts
- •Desser & Co. Ltd. appealed a £4,662.19 VAT default surcharge for the period 12/20 (October 1 to December 31, 2020).
- •The company made payments totaling £102,530.61 to HMRC between August 2020 and February 5, 2021.
- •No Time-to-Pay (TTP) arrangement was in place for period 12/20.
- •The VAT return for 12/20 was submitted on February 9, 2021, after the due date.
- •Payments were made without specifying allocation to period 12/20.
- •HMRC allocated payments to older outstanding debts (periods 06/20 and 09/20).
Legal Principles
The burden of proof initially lies on HMRC to show a penalty is due. Once this is established, the burden shifts to the Appellant to demonstrate a reasonable excuse.
Perrin v R & C Commrs [2018] BTC 513
VAT due is a liability of the person making the supply and becomes due at the time of supply.
VATA s. 1(2)
A taxpayer must file a VAT return and pay VAT by the due date; there's a statutory obligation for both.
R & C Commrs v Enersys Holdings UK Ltd. [2010] UKFTT 20 (TC)
A TTP arrangement must be agreed before the default; a unilateral payment plan isn't sufficient to avoid a surcharge.
Finance Act 2009 s. 108
In the absence of allocation by the debtor, the creditor (HMRC) can allocate payment to the oldest debt.
Cory Bros v Owners of the Steamship Mecca [1897] AC 286
The test for a reasonable excuse is objective: Would a reasonable trader, with the taxpayer's experience and in their situation, have done what the taxpayer did?
The Clean Car Co Ltd v C&E Commissioners [1991] VATTR 234
Ignorance of the law is not a reasonable excuse.
Hesketh & Anor v HMRC [2018] TC 06266; Spring Capital v HMRC [2015] UKFTT 8 (TC)
The default surcharge regime is proportionate and doesn't allow for individual assessments of fairness.
R & C Commrs v Total Technology (Engineering) Ltd. [2012] UKUT 418 (TCC); R & C Commrs v Trinity Mirror plc [2015] UKUT 421 (TCC)
Outcomes
Appeal dismissed.
The Appellant failed to pay VAT by the due date for period 12/20, and did not have a reasonable excuse. The payments made were not allocated to period 12/20, and HMRC correctly allocated them to older debts. The default surcharge was correctly applied.