Recession deemed ‘Reasonable Excuse’ for VAT penalty appeal.

| 10th September 2014

A tax tribunal judge has accepted a company’s reason for late payment of VAT liabilities as due to ‘factors flowing from the recession’.

Scrimsign Micro-Electronics Ltd received three surcharge notices from HMRC for failing to pay their VAT bills on time. Despite the managing director appealing to HMRC that the company was suffering from financial difficulties attributable to the economic climate, tax officials refused to accept that as a ‘reasonable excuse’

They argued that Scrimsign had failed to show that the problems were, in fact, due to factors outside the company’s control, and not just ‘normal hazards of trade’.

HMRC also pointed out that ‘a prudent taxpayer would, in the circumstances described by Mr Scrimshire, have contacted HMRC and made suitable time to pay arrangements’. Given that Mr Scrimshire pointed out that ‘the VAT was always paid in full, and frequently only a few days late’, HMRC are likely to have accepted a time to pay arrangement with few conditions.

Nevertheless, the judge found in favour of the taxpayer, and quashed the surcharges, totalling approximately £3000.

HMRC will no doubt appeal against the decision to the Upper Tribunal, as it could well set a precedent for other similar appeals made for VAT penalties (amongst others).