Taxpayers who do not submit their VAT returns to HMRC within the prescribed time limits, can suffer penalties of up to 15% of the VAT liability. In persistent cases HMRC, in accordance with Paragraph 4(2) of Schedule 11 to the Value Added Tax Act 1994, can require the taxpayer to provide security against its VAT liabilities.
In The Southend United Football Club Limited  (TC03095, published on 9 December 2013), HMRC claimed that the football club was persistently late in filing its VAT returns (“since December 1999 as many as 76 default surcharges have been imposed”) and issued a notice requiring security be paid by Southend United VAT for its VAT liabilities. As well as monthly VAT Returns, HMRC required 4 months’ VAT liability. Nothing could persuade the Tribunal that there wasn’t a genuine risk of continuing late payment, and of non-payment and they found that HMRC’s requirement for security was rational, fair and reasonable.
It could not realistically be argued in this case that a requirement of about £105,000 is excessive against the background of a liability for a single month of more than £80,000 which was undeclared for well over a year.
It is not always doom and gloom, however. In certain instances, it is possible to appeal against the penalties imposed by HMRC. Insufficiency of funds is not normally a reasonable excuse, but the successful appeal of CPA Bespoke Joinery Limited v HM Revenue and Customs Commissioners  (TC03081, published on 8 December 2013) demonstrates that it is always worth looking at the situation and particularly the cause of the lack of funds.
The taxpayer argued that they had insufficient funds to pay the VAT liability. HMRC thought this was not an acceptable excuse and the appeal would fail. However, the Tribunal explained that in accordance with the 1992 decisions in Steptoe (STC 757), it was possible to look to the cause of the insufficiency of funds; and the Tribunal could find that the cause represented an acceptable excuse, which in this case it did.
The Tribunal heard oral evidence from the appellant and was satisfied that there was a reasonable excuse as he was going through a particularly difficult period at and around the time when the Appellant company’s VAT fell due for payment. It found that, given his personal circumstances, it was understandable that he overlooked making prior arrangements to ensure the VAT was paid on time. Immediately upon his return following the Christmas ‘shut down’, he made arrangements to pay the VAT.
These two cases contrast how Tribunals will take a sympathetic view of rational and equitable circumstances behind late payment of returns and that the circumstances and cause behind late payments should always be considered.
For further information on all aspects of VAT please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown.