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.