Recep Acar v The Commissioners for HMRC
[2024] UKFTT 182 (TC)
Sandra Krywald v The Commissioners for HMRC
7 October 2024
[2024] UKFTT 895 (TC)
First-tier Tribunal
A solicitor was late submitting her VAT returns because of problems with her bookkeeper and wrong information from HMRC. The court understood her situation and cancelled the penalties because of the difficult circumstances.
Key Facts
- •Sandra Krywald appealed late submission and payment VAT penalties for periods 5/23, 8/23, and 11/23.
- •She had previously been under the default surcharge regime (Jan 2021 - Feb 2023).
- •Penalties were initially based on HMRC's central assessment (£16,171.92, later corrected to £3,227.64 after she submitted returns).
- •Krywald relied on a bookkeeping firm, whose bookkeeper became unreliable due to the COVID pandemic and remote working.
- •HMRC initially advised Krywald incorrectly that she needed opening balances to submit returns.
- •The bookkeeping firm ultimately resigned and reported Krywald to the Solicitors Regulatory Authority.
- •Krywald engaged a new bookkeeping firm in Spring 2024, submitting returns in June and July 2024.
Legal Principles
Late submission penalties under Schedule 24 FA 21 (points-based system, capped at £200)
Finance Act 2021
Late payment penalties under Schedule 26 FA 21 (percentage of outstanding tax on days 15, 30, and subsequent days)
Finance Act 2021
Reasonable excuse: Objective test considering actions of a responsible trader (Clean Car Co Ltd v C&E Commissioners [1991] VATTR 234)
Clean Car Co Ltd v C&E Commissioners
Special reduction: HMRC may reduce penalties for special circumstances (not defined, but excludes ability to pay)
Schedule 55 FA 21, Edwards (Upper Tribunal decision)
Outcomes
Appeal allowed.
The Tribunal found Krywald had a reasonable excuse due to the unforeseen and combined impact of the bookkeeping firm's failings, exacerbated by inaccurate HMRC advice. The delay in submitting returns after receiving correct advice was not considered unreasonable.
HMRC's decision not to reduce penalties due to special circumstances was deemed flawed.
HMRC's incorrect advice on opening balances was a significant factor. The Tribunal found that the combination of circumstances (COVID, unreliable bookkeeper, incorrect HMRC guidance, and the firm's actions) constituted special circumstances justifying a reduction to zero.
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