TC09554 - [2025] UKFTT 00747 (TC)

Fecha: 30-Abr-2025

The legislative scheme

The legislative scheme

A VAT-registered entity, such as the Appellant, is required to make periodic returns for VAT purposes and, if it owes VAT in relation to any such period, to make payment to HMRC.

The Appellant is required to account for VAT on a quarterly basis, with quarters ending on 31 March, 30 June, 30 September and 31 December. As it pays its quarterly VAT electronically, the due date for payment of any VAT is the seventh calendar day of the second month following the quarter end. (This represents a seven-day extension granted by HMRC under a direction given under the powers of regulation 40(3) and (4) of the Value Added Tax Regulations 1995.) Therefore, for the quarter ended 30 June 2024, the net VAT payable for that quarter was due to be paid to HMRC by 7 August 2024.

The net amount of VAT payable is the excess of the taxpayer’s output tax for the period over any input tax which the taxpayer has incurred for the period. In those cases where, for any particular period, the taxpayer’s input tax exceeds the output tax, no VAT is payable by the taxpayer. Instead, HMRC will repay the difference to the taxpayer, once any security checks have been completed.

10.

For VAT periods commencing on or after 1 January 2023, penalties for the late payment of VAT by taxpayers are charged under the provisions found in Schedule 26 to the Finance Act 2021. Under that Schedule:

(1)

No penalty is payable if the tax due is paid in full before the end of the 15 day period (paragraph 4).

(2)

The 15 day period is defined as the period of 15 days beginning immediately after the date on which the tax was due to be paid (paragraphs 1, 10(2)).

(3)

If the tax due is not paid in full before the end of the 15 day period, then a penalty is payable. The amount of the penalty depends on whether the tax is then paid in full before the end of the 30 day period (paragraph 5).

(4)

The 30 day period is defined as the period of 30 days beginning immediately after the date on which the tax was due to be paid (paragraphs 1, 10(3)).

(5)

The amount of the penalty is equal to the sum of:

(a)

2% of the amount of tax unpaid at the end of the 15 day period; and

(b)

2% of the amount of tax unpaid at the end of the 30 day period (paragraph 5(2)—(5)).

(6)

Although the legislation operates by reference to a single penalty being imposed, in effect, a taxpayer is liable to pay a 2% penalty for being more than 15 days late with the payment of tax and a further 2% penalty to the extent that the tax is still unpaid 30 days after it was due.

(7)

The Schedule contains relaxations to these rules in cases where a taxpayer and HMRC have reached an agreement for the deferral of the payment of some or all of the tax due. The application of those provisions is not relevant to this case and they are not discussed further.

(8)

Taxpayers are excused liability for a penalty if they have a “reasonable excuse” for paying the tax late (paragraph 12(1)).

(9)

The statute (paragraph 12(2)) imposes the following restriction on reliance on reasonable excuse.

For this purpose—

(a)

an insufficiency of funds is not a reasonable excuse, unless attributable to events outside the person’s control,

(b)

where the person relies on any other person to do anything, that is not a reasonable excuse unless the first person took reasonable care to avoid the failure, and

(c)

where the person had a reasonable excuse for the failure but the excuse has ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.

(10)

Furthermore, paragraph 13 provides as follows:

13(1) If HMRC think it right because of special circumstances, they may reduce a penalty under this Schedule.

13(2) In sub-paragraph (1) “special circumstances” does not include–

(a)

ability to pay, or

(b)

the fact that a potential loss of revenue from a taxpayer is balanced by a potential over-payment by a taxpayer.

13(3) In sub-paragraph (1) the reference to reducing a penalty includes a reference to–

(a)

staying a penalty, and

(b)

agreeing a compromise in relation to proceedings for a penalty.

(11)

Appeals against penalties are considered at paragraphs 19 to 21 which read as follows:

19(1) A person may appeal against a decision of HMRC that the person is liable to a penalty under this Schedule.

19(2) A person liable to a penalty under this Schedule may appeal against a decision of HMRC as to the amount of the penalty.

20(1) An appeal under paragraph 19 is to be treated in the same way as an appeal against an assessment to the tax concerned (including by the application of any provision about bringing the appeal by notice to HMRC, about HMRCʼs review of the decision or about determination of the appeal by the First-tier Tribunal or Upper Tribunal).

20(2) Sub-paragraph (1) does not apply–

(a)

so as to require the person to pay a penalty before an appeal against the assessment of the penalty is determined, or

(b)

in respect of any other matter expressly provided for by this Schedule.

21(1) On an appeal under paragraph 19(1) that is notified to the tribunal, the tribunal may affirm or cancel HMRCʼs decision.

21(2) On an appeal under paragraph 19(2) that is notified to the tribunal, the tribunal may–

(a)

affirm HMRCʼs decision, or

(b)

substitute for HMRCʼs decision another decision that HMRC had power to make.

21(3) If the tribunal substitutes its decision for HMRCʼs decision in relation to a penalty under this Schedule, the tribunal may rely on paragraph 13–

(a)

to the same extent as HMRC (which may mean applying the same percentage reduction as HMRC to a different starting point), or

(b)

to a different extent, but only if the tribunal thinks that HMRCʼs decision in respect of the application of paragraph 13 was flawed.

21(4) In sub-paragraph (3)(b) “flawed” means flawed when considered in the light of the principles applicable in proceedings for judicial review.

21(5) In this paragraph “tribunal” means the First-tier Tribunal or Upper Tribunal (as appropriate by virtue of paragraph 20(1)).