In Five Star (Development) Homes Limited v HMRC [2025] TC09668, the First Tier Tribunal (FTT) found that a trainee’s failure to submit VAT returns on time before neglecting to alert the managing director did not give rise to a reasonable excuse. HMRC’s late filing penalties were valid.
Five Star (Development) Homes Limited (FSDHL) had been Registered for VAT since 1 November 1979. Being in a repayment position, it submitted VAT returns monthly.
- FSDHL’s VAT returns for the periods 02/23 to 09/24 inclusive were all filed after their due dates. These showed aggregate VAT to be repaid to FSDHL of £12,125.
- The first three returns were filed on 5 July 2023, and the remaining fourteen were filed on 25 November 2024.
- HMRC issued five Penalty points (the maximum) and charged twelve Late filing penalties of £200 each.
- The first late submission penalty notice was issued around 15 April 2023 and then monthly thereafter, until around 15 November 2024.
- FSDHL appealed to HMRC, stating that:
- A trainee was responsible for everyday accounting, but she lacked experience.
- The managing director had only just (as of 6 December 2024) been made aware that the online software used had failed to correctly submit the returns. The final stages of completing the submissions had defaulted.
- The error was attributable to the trainee, who had not told the managing director about the penalty letters and had “tried to figure it out herself” because she feared losing her job.
- HMRC upheld the points and penalties in a Review conclusion letter. FSDHL Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- Reliance on another person to do anything cannot be a Reasonable excuse, unless the taxpayer took reasonable care to avoid the failure.
- It was FSDHL’s responsibility to ensure that the VAT returns were filed, and there appeared to have been no internal systems in place to achieve that.
- While it was unfortunate that the trainee did not tell the managing director about the penalty notices until late 2024, ultimately it was the managing director’s responsibility to ensure that the trainee was adequately trained and supervised, and that the VAT returns were filed on time.
- Other arguments made by FSDHL, such as it being in Financial difficulties, could not amount to a reasonable excuse.
The appeal was dismissed.
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: Insufficiency of Funds
When will insufficiency of funds be a reasonable excuse for late filing of a tax return or late payment of tax?
Penalties: Late Filing MTD
A points-based late submission penalty regime is replacing existing late submission penalties for VAT and Income Tax Self Assessment (ITSA) under Making Tax Digital.
Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated?
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