Case Law Analysis: Pracyva Ltd v HMRC Examines 'Reasonable Excuse' for VAT Default Surcharges.

Citation: [2024] UKFTT 32 (TC)
Judgment on


The case Pracyva Ltd v The Commissioners for HM Revenue and Customs ([2024] UKFTT 32 (TC)) involves an appeal against VAT default surcharges imposed by HMRC and provides an examination of the concept of ‘reasonable excuse’ and the application of Section 108 of the Finance Act 2009. This article provides a detailed analysis of the legal principles at play and the reasoning behind the First-tier Tribunal’s decision.

Key Facts

Pracyva Ltd, an IT consulting firm, had been issued with VAT default surcharges for its VAT periods ended 09/21 and 12/21. The business faced significant expansion-related challenges, including cashflow issues and the impact of the Covid-19 pandemic, and had a history of delayed VAT payments. The surcharges were contested on the basis of Section 108 of the Finance Act 2009, which concerns the deferral of tax payments and the avoidance of default surcharges under certain conditions.

In the case of VAT Period 12/21, HMRC eventually cancelled the default surcharge. The case, therefore, hinged on whether Pracyva Ltd had a ‘reasonable excuse’ for the late payment of VAT for the 9/21 period, by applying the principles set out in Section 108 of the Finance Act 2009.

The key legal principles discussed in the case include:

  1. Section 108 of the Finance Act 2009: This section is crucial to understanding when a taxpayer is shielded from default surcharges. It establishes that a taxpayer who requests a deferral before the due date for a penalty, and has that deferral agreed upon by HMRC, is not liable for default surcharges incurred even if the agreement from HMRC occurs after the penalty’s due date.

  2. Reasonable Excuse: The case references the lack of a statutory definition of what constitutes a ‘reasonable excuse’ for VAT default, instead relying on an objective test that considers all the circumstances of the particular case. The objective test as laid out by the Upper Tribunal in Perrin v HMRC and by the VAT Tribunal in The Clean Car Co Ltd v Customs and Excise Commissioners involves considering whether the actions, beliefs, or omissions were reasonable for the taxpayer in their situation.

  3. Section 71 VATA (Value Added Tax Act 1994): Cited in the Steptoe case, this section states that the insufficiency of funds to pay VAT does not constitute a reasonable excuse. However, the reasons for the insufficiency of funds could if they were unforeseeable or inescapable, and they could not have been avoided by the exercise of reasonable foresight.


The Tribunal dismissed the appeal regarding the default surcharge for VAT Period 9/21 for the following reasons:

  1. Pracyva Ltd did not make a request for deferral of payment before the penalty’s due date.
  2. The insufficiency of funds and business difficulties cited by Pracyva Ltd were not accepted as constituting a reasonable excuse under the law.

The Tribunal did not need to make a decision on the default surcharge for VAT Period 12/21 as it had been cancelled following a concession from the Respondents, acknowledging that Pracyva’s approach to HMRC for a TTP on the date VAT was due should have suspended the default surcharge.


The First-tier Tribunal’s decision in Pracyva Ltd v The Commissioners for HM Revenue and Customs emphasizes the importance of the timing of a request for deferral to avoid default surcharges according to Section 108 of the Finance Act 2009. It also reasserts the concept of ‘reasonable excuse’, underscoring that financial difficulties, while challenging, do not typically absolve businesses from meeting their statutory tax obligations unless exceptional circumstances apply. This case reinforces the narrow interpretation of ‘reasonable excuse’ and the necessity for taxpayers to engage proactively with HMRC before default surcharges accrue.

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