In Godolphin Management Company Limited v HMRC [2018] TC06515, the First-Tier Tribunal (FTT), agreed that the taxpayer had despatched the VAT on time for one return but not the other.

The taxpayer paid VAT late for two periods of account and HMRC issued VAT surcharges totalling £225,477.

The taxpayer argued that the first default surcharge was not payable:

  • A Direct Debit Instruction (DDI) was setup one month before the due date of the VAT.
  • No receipt confirming that the DD was setup was received, nor was any statement stating that there was a problem received.

The FTT found for the taxpayer in respect of the first surcharge:

  • The DDI was clearly submitted and there was no reason for the appellant to be concerned that it was unsuccessful.
  • This meant the taxpayer had despatched the VAT due at such a time and in such a manner that it was reasonable to expect that it would be received by HMRC by the due date.
  • The surcharge is not due.

As for the second surcharge, the validity was not appealed, it was only argued that it was disproportionate.

The FTT dismissed the appeal but reduced the surcharge to 2%, due to the lower rate applicable as a consequence of the earlier surcharge being revoked.

The FTT did consider whether the taxpayer would have had a Reasonable excuse for the first surcharge if they could not have succeeded on the basis that the payment had been despatched.

  • The taxpayer would have had a reasonable excuse.
  • They had taken necessary and published steps to set up the DDI and absent any communication from HMRC it was reasonable to assume that the payment had been despatched on time.

The FTT also dismissed HMRC’s contention that in all circumstances there can be no reasonable excuse as a result of genuine mistakes. There was no basis for this view and the test is simply what is reasonable in all the circumstances.


Penalties (VAT)

Reasonable excuse

External link: Godolphin Management Company Limited v HMRC [2018] TC06515

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