Kattrak International Limited v The Commissioners for HMRC
[2022] UKFTT 427 (TC)
Spirit Motor Company Limited v The Commissioners for HMRC
30 June 2023
[2023] UKFTT 614 (TC)
First-tier Tribunal
A car company was late paying its taxes. They said they were busy and made a mistake about a payment plan. The judge said that wasn't a good enough excuse, and they had to pay the extra charges.
Key Facts
- •Spirit Motor Company Limited (Appellant) appealed against VAT default surcharges for periods 08/21 (£2,613.33) and 11/21 (£3,662.09).
- •Appellant's director, Mr. Sadiq, handled VAT returns. Prior to Covid-19, the company had an excellent VAT history.
- •Covid-19 caused staffing problems and difficulties in reclaiming VAT.
- •A Time to Pay (TTP) plan was set up with a direct debit, but Mr. Sadiq mistakenly believed it covered future liabilities.
- •The 08/21 return was late, and payment was made late by credit card.
- •The 11/21 return was filed on time, but payment was late, again requiring manual payment.
- •Appellant requested a review, which was denied, leading to the appeal.
Legal Principles
Default surcharges under section 59 Value Added Tax Act 1994 (VATA) are triggered by late returns or payments.
VATA 1994, section 59(1)
A surcharge liability notice (SLN) must be properly served for a surcharge to be valid.
VATA 1994, section 59(2)(b)
A reasonable excuse for late return or payment prevents surcharge liability.
VATA 1994, section 59(7)
Insufficient funds or reliance on others are not reasonable excuses.
VATA 1994, section 71
The test for reasonable excuse is objective, considering the taxpayer's circumstances.
The Clean Car Company v C&E Commissioners [1991] VATTR 234
A simple mistake is not automatically a reasonable excuse.
Garnmoss t/a Parnham Builders v HMRC [2012] UKFTT 315 (TC)
Outcomes
Appeal dismissed.
The SLNs were properly served. The Appellant's excuses (staff shortages, mistaken belief about direct debit covering future liabilities) were not objectively reasonable considering the Appellant's experience and prior knowledge of the VAT system and previous defaults. Failure to verify the direct debit payment after a previous manual payment was made demonstrates a lack of reasonable care.