Director loses £84k VAT case

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The First Tier Tribunal (FTT) has ruled that a director did not have a reasonable excuse for not paying an £84k VAT bill on time

The appellant, Ian Rose, appealed against a VAT penalty issued for a late payment of £1,936.05.

WWM Rose & Sons Ltd, a limited company incorporated on 6 December 1976, provided wholesale agricultural machinery, equipment and supplies.

The due date for the VAT return and payment for the period 01/21 was 7 March 2021. The return was filed on 5 March 2021 and the VAT bill of £84,078.50 was paid under the National Direct Debit Service (NDDS) on various dates.

In addition, a time to pay (TTP) arrangement was set up on 8 March 2021 with the first payment being due on 1 April 2021.

On 12 March 2021, HMRC issued a surcharge liability notice (SLN) for the period 12 March 2021 to 31 January 2022, on the basis that the time to pay arrangement had not been set up before the VAT due date.

The due date for the VAT return and payment for the period 01/22 was 7 March 2022, with the total amount due being £96,802.73.

Rose was aware of the existing direct debit that was in place and filed the return on time, but payment was not made due to ‘cash flow difficulties’.

HMRC’s case was that by failing to pay VAT by the due date, the appellant had failed to comply with the Value Added Tax Act (VATA) and the Value Added Tax Regulations 1995.

They also stressed that Rose had ample opportunity to contact HMRC to agree to a time to pay arrangement before the due date.

On 10 March 2022, one of the company directors contacted HMRC to advise that the company was having difficulties in paying its VAT.

This later led to a surcharge penalty of £1,396.05 being issued on 17 March, in respect of late paid VAT for the 01/22 period and the surcharge period was extended to 31 January 2023.

At the FTT, Rose requested a review of the surcharge on the basis that a call had been made to HMRC to agree to a time to pay arrangement before the due date for payment of VAT and that the ‘deterioration of capital equipment’ resulted in cashflow problems affecting payment.

Referring to a review conclusion letter written by HMRC on 11 May 2022, the tribunal found that Rose had been ‘under the misconception’ that HMRC had agreed to a time to pay arrangement on or before the due date for payment.

The letter stated that an arrangement should be made ‘in advance of the due date’ on the return, which is not the same as saying that one had been received and agreed to.

In respect of the second submission, Rose had argued that he had been unable to pay the VAT as a result of being ‘unable to purchase new machines’ due to a lack of production by manufacturers – who had experienced a ‘shortage of components’ from their supplies.

Responding, Amy Cook of HMRC argued that Rose had been ‘aware of the process’ relating to the VAT due and that he would have known that payment was due at the same time that the return was submitted for the period.

On that basis that WWM had been registered for VAT since 1976 and had experienced cash flow problems previously, Cook submitted that the company did not have a ‘reasonable excuse’ for the late payment.

They should have been aware of their obligations and that continuing default would have resulted in financial consequences.

In addition, little to no evidence had been provided related to the alleged cash flow problems, and in any event, these problems were ‘an ongoing hazard’ of the trade and so the company could not claim the excuse of insufficient funds.

Judge Natsai Manyarara said: ‘We find that there is considerable force in HMRC’s submission that the appellant should have been aware of the potential financial consequences of any continued default, or the obligations in respect of VAT.

‘We are not told of any other efforts by the appellant to inform itself of the requirements of VAT. We are satisfied that the gov.uk website provides taxpayers with information in relation to the statutory due dates for payment of tax.

‘Having regard to the findings of fact we are satisfied that the appellant has not established a reasonable excuse.’

The appeal was dismissed.

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