In Sandra Krywald v HMRC [2024] TC09312, the First Tier Tribunal (FTT) found that a taxpayer had a reasonable excuse for the late submission of VAT returns. She took reasonable care to avoid the failings of her advisers and HMRC.
Ms Krywald, a solicitor, outsourced her bookkeeping to a firm that supplied ‘Bookkeeper 1’ to undertake the work.
- During the COVID pandemic, Bookkeeper 1 started to work remotely. This resulted in VAT return figures being produced late.
- It subsequently became apparent that the figures produced by Bookkeeper 1 may have been wrong.
- Ms Krywald was reluctant to sign VAT returns declaring that the figures they contained were correct.
- Bookkeeper 1 was made redundant by the bookkeeping firm who then supplied Bookkeeper 2, a principal of the firm, instead.
- Bookkeeper 2 did not attempt to resolve the apparent errors with any enthusiasm and informed Ms Krywald that he could not be satisfied that the figures supplied by Bookkeeper 1 were correct.
- Ms Krywald sought advice from HMRC in late 2022/early 2023.
- She was advised that in order to submit a VAT return she needed to have ‘opening balances’.
- Ms Krywald considered that she was not able to submit VAT returns because she could not be confident in the reliability of the numbers and could not, therefore, have accurate closing or opening balances.
- Ms Krywald asked the bookkeeping firm to undertake a verification exercise and continually pressed them for this, but ultimately they resigned in June 2023.
- In the Spring of 2024, Ms Krywald engaged a VAT specialist who advised that HMRC’s advice concerning opening balances was incorrect.
- The specialist brought the VAT returns up to date in June and July 2024.
- HMRC issued Late submission penalty points and late payment penalties for the periods 05/23, 08/23 and 11/23 (the default surcharge regime applied for periods between January 2021 and February 2023).
- Following a Statutory review, which upheld the points and penalties, Ms Krywald Appealed to the First Tier Tribunal (FTT) on the basis that she had a Reasonable excuse.
For VAT purposes, Reliance on another person to do anything is not a reasonable excuse unless the person took reasonable care to avoid the failure.
The FTT found that:
- Ms Krywald had a reasonable excuse. Even though she relied on the bookkeeping firm and HMRC, she took reasonable care to avoid the failings of both.
- Ms Krywald was entitled to rely on the representations given by Bookkeeper 2 that he would resolve the position. This was taking reasonable care to avoid the original failings by the firm through the agency of Bookkeeper 1.
- Taking advice from the VAT expert was taking reasonable care to avoid HMRC’s failings.
- The reasonable excuse existed up to the time when Ms Krywald consulted the VAT expert who told her that she did not need the opening and closing balances.
- The VAT returns were submitted in June and July 2024. The failure to submit the returns was remedied without unreasonable delay after the reasonable excuse ended.
The appeal was allowed.
Useful guides on this topic
Grounds for Appeal: Reasonable excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal against a tax compliance failure?
Grounds for Appeal: Reliance on an adviser or third party
When can a taxpayer appeal a penalty for late filing, late payment or for error or mistake? What are the grounds on which they can appeal?
Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated?
External link
