“Before any question of reasonable excuse comes into play, it is important to remember that the initial burden lies on HMRC to establish that events have occurred as a result of which a penalty is, prima facie, due. A mere assertion of the occurrence of the relevant events in a statement of case is not sufficient. Evidence is required and unless sufficient evidence is provided to prove the relevant facts on a balance of probabilities, the penalty must be cancelled without any question of “reasonable excuse” becoming relevant.”
“(20) Additional time is allowed to make- (a) a return using an electronic system, [a compatible software system] or a paper return system for which any related payment is made solely by means of electronic communications (see regulation 25(1)-time for making return, and regulations 40(2) to 40(4)-payment of VAT), or (b) a return using an electronic return system [or compatible software return system] for which no payment is required to be made.”
“…The legislation draws the clear line at a calendar month after the end of the prescribed period…Against that background I can see no possible scope for judicial discretion to draw the line somewhere else. If the statutory requirement was to render the return and payment on the due date, neither before nor after, there might, perhaps, be some merit in the argument that missing the target by one day was excusable…the obligation requires no more than that the return and payment are received not later than the due date.”
“If you are interested in setting up a payment plan, you will need to call us with your proposal, and this will be looked into by the advisor you speak to. You will need your bank details if a payment plan is agreed.”
“In order to discuss a payment plan, you will need to call us on the number at the top of the letter, as this cannot be discussed via letter.”
“The directors are becoming concerned that we need to reduce our VAT arrears and were hoping to be able to engage with one of your officers to arrange this. As no progress has been made, in order to protect the company, we are forced to undertake a reduction programme unilaterally. The situation is as follows: We paid the March 2020 quarter even though there was a moratorium as we hoped to be able to “ride out” the first lockdown. We also paid the June quarter on the same basis. However, we have not paid the September or December 20 quarter. These are£120,907.96 and£93,243.80 respectively, giving a total of£212,151.76 . It is our intention to pay this down in ten monthly instalments of£21,415.18 , from 20th March onwards. We trust that you will find this satisfactory and, in the absence of further word from you, will put this programme in action. However, your agreement would be gratefully received”
“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?”
“When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he made the payment, the right of application devolves on the creditor...[T]he creditor has the right of election ‘up to the very last moment’...”
“34. …For example if A borrows£100 from B on terms that it is repayable in 12 months’ time, it would be normal to regard A as owing B a debt of£100 even though the 12 months had not expired. This is a well-known type of liability, traditionally called “debitum in praesenti, solvendum in futuro”, that is a sum presently owing but which is to be discharged in the future: see for example Webb v Stenton(1883) 11 QBD 518 at 524 per Brett MR (“The law has always recognised as a debt two kinds of debt, a debt payable at the time, and a debt payable in the future”) and 527 per Lindley LJ (“a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro”).”
“a taxpayer can allocate payments to VAT for the current period whether or not the payment exceeds the cumulative output tax to that date. If the payment does exceed the then accrued amount, the balance is to be regarded as a payment on account of the tax still due to accrue during the current period. If HMRC accept such payments…then having accepted the payment as a payment towards the current period’s liability, HMRC cannot allocate it as a payment to a historic liability.”
“In our view the structure of the legislation also supports our conclusions that VAT payments made in advance of the due date may be allocated by the payer, and that this is the case even in circumstances where the payment made exceeds the output tax that has arisen by the date of payment. Our reasons are as follows: (1) It is clear that the entitlement to deduct input tax is only exercised, and becomes effective, by claiming it on the return. Unless and until it is claimed, which it need not be, the full amount of output tax is due. It is only by completing the VAT return that the entitlement to input tax is crystallised and deducted from output tax. This means that, even after the VAT period has ended, the precise amount due is not ascertained, and will not be until the return is completed and submitted. There is therefore never a point in advance of that time when any debt is precisely quantified. It follows that, if the argument that unquantified debts are incapable of allocation by the taxpayer was correct, there would be no time prior to submission of the VAT return when the taxpayer could make an allocation. This would be so even assuming that the further argument that no appropriation could be made to a debt that was not presently due was wrong. It would not be the case that an allocation could be made at any point after the period had ended, since the debt is in fact not finally quantified until the return is made. …” (1) It is clear that the entitlement to deduct input tax is only exercised, and becomes effective, by claiming it on the return. Unless and until it is claimed, which it need not be, the full amount of output tax is due. It is only by completing the VAT return that the entitlement to input tax is crystallised and deducted from output tax. This means that, even after the VAT period has ended, the precise amount due is not ascertained, and will not be until the return is completed and submitted. There is therefore never a point in advance of that time when any debt is precisely quantified. It follows that, if the argument that unquantified debts are incapable of allocation by the taxpayer was correct, there would be no time prior to submission of the VAT return when the taxpayer could make an allocation. This would be so even assuming that the further argument that no appropriation could be made to a debt that was not presently due was wrong. It would not be the case that an allocation could be made at any point after the period had ended, since the debt is in fact not finally quantified until the return is made. …”
“We have concluded that it is not disproportionate for a penalty to arise from the manner in which HMRC chooses to allocate a payment, in circumstances where the taxpayer could have but failed to make a different allocation at or before the time of payment, as we have decided that it could. Such a system might appear harsh in some cases but is not “plainly unfair”, and is not in our view so disproportionate as to be an obstacle to the aim of fiscal neutrality (Total Technology at [63]). A taxpayer that has had previous defaults should be aware of them – and indeed the default surcharge system requires notifications to be made to that effect – and if the taxpayer chooses to make a payment without allocating it to a particular period it is not particularly surprising, or unfair, that HMRC may choose to allocate it to an historic debt.”
“…There is nothing in law to prevent him from mixing this money with the rest of the funds of his business and using it for normal business expenses (including the payment of input tax), and no doubt he has every commercial incentive to do so…But by using it in his business he puts it at risk.
“Ignorance of the law cannot, as a matter of policy, ever amount to a reasonable excuse for failing to observe the law. This is because otherwise the law would favour those who chose to remain in ignorance of it above those persons who chose to acquaint themselves with the law in order to abide by it.”
“the eyes of the court are to be bandaged by the application of the maxim as to ignoratia legis.”
“About surcharges … If you default during the surcharge period you may also have to pay a surcharge which is a percentage of the VAT unpaid at the due date.”
“Think ahead … If you cannot pay the full amount of VAT due on time, pay as much as you can by contacting the Business Payment Support Service before the due date for payment. Paying as much as you can by the due date will reduce the size of any surcharge or may prevent you getting a surcharge.”
“About surcharges • If you don’t submit your return and make sure that payment of the VAT due has cleared to HMRC’s bank account by the due date you will be in default. Each time you default, we will send you a Surcharge Liability Notice. • The notice will explain what will happen if you default again in the following 12 months. This is your Surcharge Period. • If you default during the surcharge period you may also have to pay a surcharge which is a percentage of the VAT unpaid at due date. • For the first late payment during a surcharge period the surcharge will be 2%, increasing to 5%, 10% and 15%. There is a minimum surcharge of£30 for surcharges calculated at the 10% and 15% rates. We do not issue a surcharge at the 2% and 5% rates if we calculate it to be less than£400 .” • If you don’t submit your return and make sure that payment of the VAT due has cleared to HMRC’s bank account by the due date you will be in default. Each time you default, we will send you a Surcharge Liability Notice. • The notice will explain what will happen if you default again in the following 12 months. This is your Surcharge Period. • If you default during the surcharge period you may also have to pay a surcharge which is a percentage of the VAT unpaid at due date. • For the first late payment during a surcharge period the surcharge will be 2%, increasing to 5%, 10% and 15%. There is a minimum surcharge of£30 for surcharges calculated at the 10% and 15% rates. We do not issue a surcharge at the 2% and 5% rates if we calculate it to be less than£400 .”
“(a) The regime does not distinguish between a trader who has made a trivial slip and a trader who deliberately fails to file a return and to pay on the due date. Nor does it cater for degrees of culpability between those two (b) A trader who is late but has a reasonable excuse is not subject to a penalty. Nor, however long he then delays in payment, is he subjected to a penalty. (c) In contrast, a trader who is late is subject to a penalty which cannot 30 be reduced even though his payment is only a single day late. (d) The regime does not distinguish between traders who are a day late, a week late or even a month late, in contrast with some other regimes to be found in the United Kingdom tax system. (e) The potential hardship to a trader is not a factor to be taken into 35 account. In particular, the amount of the penalty is not related to profitability. (f) The previous compliance record of the trader is not taken into account save in the negative sense that previous defaults within the preceding 12 months affect the amount of the penalty (as a percentage of the tax overdue). (g) The correlation between the turnover of the trader and the size of the penalty is far from exact even where there is a failure to pay any of the tax due. (h) There is no maximum penalty. (i) There is no discretion to reduce or waive a penalty once imposed. Although the 'reasonable excuse' exception provides some relief from the harshness of the regime, there are meritorious cases where a penalty, it is suggested, should not be paid that cannot be brought within that exception.”
“…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 40 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.”
“... the tribunal must be astute not to substitute its own view of what is fair for the penalty which Parliament has imposed. It is right that the tribunal should show the greatest deference to the will of Parliament when considering a penalty regime just as it does in relation to legislation in the fields of social and economic policy which impact upon an individual's convention rights. The freedom which Parliament has in establishing the appropriate penalties is not, we think, necessarily exactly the same as the freedom which it has in accordance with its margin of appreciation in relation to convention rights (and even there, as we have explained, the margin of appreciation will vary depending on the right engaged).”
“…the regime viewed as a whole does not suffer from any flaw which renders it non-compliant with the principle of proportionality in the sense that it, or some aspect of it, falls to be struck down.”
“62. In our judgment, it is not appropriate for the courts or tribunals to seek to set any maximum penalty, or range of maximum penalties. That would in effect be to legislate. The task of the tribunal is to consider the relevant tests in the context of the individual case before it. It must not seek to establish a maximum and then compare the actual penalty to that benchmark. That was what the FTT attempted to do in this case, and it was wrong in law to have done so.”