“71. Construction of sections 59 to 70 (1) For the purpose of any provision of sections 59 to 70 which refers to a reasonable excuse for any conduct – (a) an insufficiency of funds to pay any VAT due is not a reasonable excuse; and (b) where reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse.”
“Our client was working away at the time the payment became due and did not have access to the internet to be able to make the payment due to the coverage in the area and also there wasn’t a bank branch anywhere near to call in and make the payment. Our client made the relevant payments as soon as he was able to [and] also made contact with you to make you aware of the situation.”
“Our client was working away from the business premises covering the period 24 October to18 November 2016 and during this time had very limited access to the internet which meant he was restricted from undertaking some business matters in a timely manner. This meant he was unable to access his online banking to make the payment to you before the deadline of7 November 2016 . Our client did however make this payment at his first opportunity after the deadline and tried to telephone you to discuss this matter.”
“Perhaps in hindsight our original letter dated23 November 2016 didn’t make clear that our client was away on holiday and due to a delay caused by the travel company, in turn our client was unable to file the VAT return on time and make the necessary payment.”
“In hindsight perhaps my letter of23 November 2016 did not detail the full facts as to why the payment in respect of the quarter ended30 September 2016 was not paid on time. As you are aware the VAT return was filed on4 November 2016 , Mr Gilbert was away on holiday at the time and gave instructions to his book keeper to pay the VAT liability but sadly the book keeper failed to do so. I enclose as evidence the bank statement for the period in question and you will note the references to the Las Vegas trip, you will also note that the company had more than sufficient funds to pay the VAT liability on the due date. Mr Gilbert then returned from holiday and was working away at the time and had limited access to the internet, but at this stage he was oblivious to the fact that this liability had not been paid. It wasn’t until the21 November 2016 that the book keeper admitted the error and Mr Gilbert made the payment immediately.”
“It has been said before in cases arising from default surcharges that the test of whether or not there is a reasonable excuse is an objective one. In my judgment it is an objective test in this sense. One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?”
“[63] The correct approach is to determine whether the penalty goes beyond what is strictly necessary for the objectives pursued by the default surcharge regime, as discussed in detail in Total Technology and whether the penalty is so disproportionate to the gravity of the infringement that it becomes an obstacle to the achievement of the underlying aim of the directive which, in this context, we have identified as that of fiscal neutrality. To those tests we would add that derived from Roth in the context of a challenge under the Convention to certain penalties, namely “is the scheme not merely harsh but plainly unfair, so that, however effectively that unfairness may assist in achieving the social goal, it simply cannot be permitted?” [64] In Total Technology the Upper Tribunal identified, at [84], features of the regime which supported an argument that the scheme was fair. The tribunal said: “However, from HMRC's point of view, the regime has a lot to commend it. It is mechanistic and therefore comparatively easy to administer. There is no need for hard-pressed officers of HMRC to spend scarce time and resources in dealing with a vague and amorphous power to mitigate a penalty. The following factors can be prayed in aid in response to the unfairness alleged by the Company: (a) The simplicity of the system makes it easily understood, as well as being relatively easy to operate. (b) The surcharge is only imposed on a second or subsequent default, and after the taxpayer has been sent a surcharge liability notice warning him that he will be liable to surcharge if defaults again within a year. Taxpayers thus know their positions and should be able conduct their affairs so as to avoid any default. (c) The penalty is not a fixed sum but is geared to the amount of outstanding VAT. Although a somewhat blunt instrument, it does bring about a broad correlation between the size of the business and the amount of the penalty. It does not suffer from the objections which could be made to the fixed penalty in Urbán . (d) The percentage applicable to the calculation of the penalty increases with successive defaults if they occur within 12 months of each other. This is a rational and reasonable response to successive defaults by a taxpayer. (e) The ‘reasonable excuse’ exception strikes a fair balance. The gravity of the infringement is reflected in the absence of 'reasonable excuse' and the amount of the penalty reflects the extent of the default, that is to say the amount of tax not paid by the due date.’ [65] We agree with the tribunal in Total Technology that the default surcharge regime, viewed as a whole, is a rational scheme. The penalties are financial penalties, calculated by reference to the amount of tax unpaid at the due date. Although penalties may vary with the liability of the taxable person for the relevant VAT period, and increase commensurately with an increase in such liability (and, consequently, such default), the penalties are not entirely open-ended. The maximum liability for a fifth or subsequent period of default is 15% of the amount unpaid. In common with the Upper Tribunal in Total Technology, we consider that the use of the amount unpaid as the objective factor by which the amount of the surcharge varies is not a flaw in the system; to the contrary, the achievement of the aim of fiscal neutrality depends on the timely payment of the amount due, and that criterion is therefore an appropriate, if not the most appropriate, factor. [66] However, we accept that, applying the tests we have described, the absence of any financial limit on the level of surcharge may result in an individual case in a penalty that might be considered disproportionate. In our judgment, given the structure of the default surcharge regime, including those features described in Total Technology, this is likely to occur only in a wholly exceptional case, dependent upon its own particular circumstances. Although the absence of a maximum penalty means that the possibility of a proper challenge on the basis of proportionality cannot be ruled out, we cannot ourselves readily identify common characteristics of a case where such a challenge to a default surcharge would be likely to succeed. [67] We should, in particular, not be taken to have endorsed the suggestion put forward by Mr Mantle that the exceptional circumstances that might give rise to a disproportionate penalty could include cases, such as Enersys , where there had been what was described as a “spike” in profits, such that for a particular VAT period the liability to account for and pay VAT was of a different order of magnitude that was normal for the trader concerned. Attempting to identify particular categories of case in this way is not, in our view, helpful. Whilst it might be tempting to seek to isolate, and thus confine, cases by reference to particular criteria, such cases, by reason of their exceptional nature, are likely to defy such characterisation.”