In MJL Contracts Ltd v HMRC [2023] UKUT 254, the Upper Tribunal (UT) found that there was no additional requirement placed on HMRC to make an assessment before imposing a surcharge penalty for non-payment of VAT.

  • The appellant Registered for VAT in October 2012.
  • In 2019, a Surcharge Liability Notice (SLN) was issued for the period 05/19.
  • For the period 05/20, the due date for both the return and the payment was 7 July 2020. The return was submitted on 6 July 2020 and whilst part of the liability had been settled by the due date, some remained outstanding.
  • A further SLN was issued and the surcharge period was extended until 31 May 2021.
  • For the period 08/20, with a due date of 7 October 2020, the return was submitted on 7 October 2020 and, again, a part payment of the liability was made.
  • The surcharge period was further extended to 31 August 2021.
  • The SLN for 05/19 was subsequently withdrawn.
  • The appellant made an Appeal against the surcharge applicable for the period 08/20 to the FTT on the basis that:
    • s.59 VATA 1994 (the Default Surcharge) could not apply as it is only for taxpayers who either do not submit a VAT return on time or who have not paid a VAT liability following an assessment.
    • s.76(1) VATA 1994 requires HMRC to 'assess' the amount due in relation to the penalty and they had not done so.
  • The FTT dismissed the appeal and the appellant appealed to the UT on the same grounds.

The UT found that:

  • A person is in default as per s.59(1) if they either fail to submit a return by the due date or fail to pay the VAT liability shown on the return by the due date.
  • As such, the UT did not recognise the interpretation of the legislation as offered by the appellant.
  • s.59(4) states that the surcharge penalty is based on the 'outstanding VAT for that prescribed accounting period'. There is no requirement for an assessment to be made. This is only necessary where the return missing, incomplete or incorrect, as set out in s.73 VATA 1994.
  • s.76 uses the word 'assess' but case law has set out that this is just the part of the process where a VAT liability is fixed, and that parliament cannot have intended HMRC to have to determine assessments for each and every taxpayer.

The appeal was dismissed.

Useful guides on this topic

Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated? 

How to appeal a tax penalty
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?

External links

MJL Contracts Ltd v HMRC [2023] UKUT 254


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