Polyteck Building Services Ltd v The Commissioners for HMRC
[2023] UKFTT 575 (TC)
MPMH Construction Limited v The Commissioners for HMRC
15 August 2024
[2024] UKFTT 746 (TC)
First-tier Tribunal
A construction company was late paying its VAT because of huge delays in payments from the NHS during the COVID-19 pandemic. A court decided that this was a good reason for being late, and cancelled the penalties.
Key Facts
- •MPMH Construction Ltd appealed against default surcharges totaling £247,151.18 for late VAT payments for periods 02/21, 05/21, 08/21, 11/21, and 02/22.
- •The company's late payments were attributed to significant operational challenges caused by the COVID-19 pandemic, including disruptions to staffing, scheduling, and material availability, as well as substantial delays in payments from NHS contracts.
- •The company argued that these circumstances constituted a reasonable excuse for the late payments.
- •HMRC argued that insufficiency of funds is not a reasonable excuse under Section 71(1)(a) of the VAT Act 1994.
Legal Principles
Default surcharges for late VAT payments are governed by Section 59 of the Value Added Tax Act 1994 (VATA).
Value Added Tax Act 1994
A reasonable excuse for late payment is a defense against default surcharges, but must be objectively reasonable given the taxpayer's circumstances and attributes.
Rowland v HMRC [2006] SPC548/06; The Clean Car Company v C&E Commissioners [1991] VATTR 234; Perrin v HMRC [2018] UKUT 156 TCC
Insufficiency of funds alone is not a reasonable excuse, but underlying reasons for the insufficiency may constitute a reasonable excuse.
Section 71(1)(a) VATA
Outcomes
The appeal was allowed.
The Tribunal found that the appellant's circumstances, specifically the unexpected and substantial delays in payments from NHS contracts due to the COVID-19 pandemic, combined with increased labor and material costs, constituted an objectively reasonable excuse for the late VAT payments.