W.Byers Limited v The Commissioners for HMRC [2026] UKFTT 886 (TC)

[2026] UKFTT 00886 (TC)

Case No TC 09915

FIRST-TIER TRIBUNAL

TAX CHAMBER

Date Judgment date: 15 June 2026

Between

W.BYERS LIMITEDAppellant

THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondent

Location: Decided on the papers

Appeal reference: TC/2026/00514

VAT – late payment penalty – Schedule 26 Finance Act 2021 – Direct Debit – ineffective mandate – HMRC guidance – confirmation message – reasonable excuse – reliance on HMRC communication – whether reasonable – payment made after due date – whether failure remedied without unreasonable delay – appeal allowed

Decided by:

TRIBUNAL JUDGE GERAINT WILLIAMS

The Tribunal determined the appeal on the papers without a hearing, both parties having made representations in respect of the appeal.

DECISION

Introduction

[1]This appeal concerns a first late payment penalty in the sum of £4,848.54 assessed under Schedule 26 to the Finance Act 2021 in respect of the VAT accounting period ending 30 September 2025.

[2]The parties have agreed that the appeal should be determined on the papers without a hearing.

[3]The issue is whether the Appellant had a reasonable excuse for the late payment. Although the Appellant also refers to a “reasonable expectation” that payment would be received by the due date, that is not a separate statutory test but forms part of the overall assessment of reasonable excuse.

Burden of proof

[4]The burden of proof lies on the Appellant to establish, on the balance of probabilities, that there was a reasonable excuse for the failure and that the failure was remedied without unreasonable delay once that excuse ceased.

[5]The underlying facts giving rise to the penalty are not in dispute.

Background

[6]The Appellant is a company registered for VAT.

[7]The relevant VAT accounting period ran from 1 July 2025 to 30 September 2025.

[8]The net VAT payable for the period was £161,618.14.

[9]The due date for payment was 7 November 2025.

[10]On 6 November 2025 at 09.30 the Appellant submitted its VAT return electronically.

[11]On the same date, the Appellant set up a Direct Debit instruction with HMRC.

[12]On doing so, the Appellant received an on-screen automated confirmation message stating:

“Direct Debit instruction received … What happens next We will collect your payments automatically by Direct Debit.”

What happens next We will collect your payments automatically by Direct Debit.”

What happens next

[13]On or about the same date, the Appellant transferred substantial funds, including transfers of £50,000 and £100,000, into its current account for the purpose of paying the VAT liability.

[14]No payment was collected by HMRC by the due date.

[15]HMRC’s system records show that the VAT charge arose on 7 November 2025.

[16]No payment was made within 15 days of the due date.

[17]Between 25 and 27 November 2025 the Appellant made four faster payments totalling £161,618.14 which discharged the liability in full.

[18]HMRC’s records show that the penalty was created on 29 November 2025 and on 2 December 2025 HMRC issued a first late payment penalty. The penalty was calculated at 3 per cent of the amount outstanding at day 15.

[19]On 1 December 2025 the Appellant requested a review.

[20]On 13 January 2026 HMRC issued a review conclusion upholding the penalty. In that review conclusion HMRC stated that the Direct Debit was ineffective because it had been established on the same day as submission of the return and that, according to their guidance, at least three working days’ notice was required.

[21]The Appellant appealed to the Tribunal on 6 February 2026.

[22]HMRC assert that the penalty notice was properly issued and served. It is not disputed by the Appellant that the penalty correspondence was received. I therefore proceed on the basis that service is not in issue and requires no further determination. The Parties’ Submissions Appellant’s submissions

The Parties’ Submissions

[23]The Appellant’s case, as set out in the grounds of appeal, is presented in the form of a detailed narrative explaining both the steps taken and the understanding upon which those steps were taken.

[24]The Appellant explains that it had previously operated a Time to Pay arrangement in respect of VAT, which had required the cancellation of an earlier Direct Debit mandate. Once that arrangement came to an end, the Appellant took steps to reinstate payment by Direct Debit in advance of the next VAT payment falling due.

[25]On 6 November 2025, being the day before the due date for the VAT liability in question, the Appellant set up a new Direct Debit instruction with HMRC and, on the same day, submitted its VAT return.

[26]The Appellant emphasises that, contemporaneously with these steps, it transferred substantial funds from its reserve account into its current account specifically in anticipation of HMRC collecting the VAT liability by Direct Debit. The Appellant relies on the bank statement exhibited in the hearing bundle as corroboration of that step and as evidencing a clear intention to comply with its obligations.

[27]Upon setting up the Direct Debit instruction, the Appellant received an automated confirmation message from HMRC. The Appellant places particular weight on the wording of that message, which stated under the heading “What happens next” that HMRC “will collect your payments automatically by Direct Debit”.

[28]The Appellant submits that this message was clear, unequivocal and unqualified. In particular, it did not state, or even suggest, that the effectiveness of the Direct Debit was subject to any minimum notice period nor that a payment due shortly thereafter would not be collected.

[29]The Appellant states that, in those circumstances, it understood that no further action was required on its part and that HMRC would, in accordance with the message, collect the VAT due automatically.

[30]The Appellant further submits that there was nothing in the process of setting up the Direct Debit or submitting the return that indicated that those steps were insufficient or would not result in payment being taken. It contends that, from the perspective of a reasonable user of HMRC’s systems, the sequence of actions taken was entirely consistent with compliance.

[31]The Appellant discovered some weeks later that payment had not been collected. Upon becoming aware of that fact, it took steps to remedy the position by making payment in full.

[32]A central plank of the Appellant’s case is that HMRC’s reliance on internal processes or published guidance concerning timing requirements cannot displace the effect of the specific representation made in the confirmation message. Such requirements are procedural matters within HMRC’s systems and were not communicated at the point when the Appellant was required to act.

[33]The Appellant characterises the confirmation message as misleading in that it conveyed an unconditional assurance that payment would be collected, when in fact that was subject to a material condition which was not disclosed.

[34]The Appellant was entitled, as a matter of reasonable conduct, to rely upon the clear and express wording of that message, rather than to infer the existence of undisclosed conditions from other sources.

[35]The Appellant also relies on the personal circumstances of its director, who is autistic. It is said that he relies on clear, literal written communication in dealing with administrative matters and that the absence of any qualification in the message led him to understand it at face value.

[36]The Appellant’s case is therefore that it took all reasonable steps to comply with its obligations, that it ensured funds were available, and that the failure arose solely because it relied, reasonably and in good faith, on HMRC’s own communication.

[37]On that basis, the Appellant contends that it had a reasonable expectation that HMRC would receive payment by the due date and that this constitutes a reasonable excuse within the meaning of Schedule 26.

HMRC’s submissions

[38]HMRC’s case, as set out in their Statement of Reasons, is that the penalty has been validly imposed in accordance with the statutory regime introduced by Schedule 26 to the Finance Act 2021 and that the Appellant has not established any basis upon which it can be displaced.

[39]HMRC submit that the statutory conditions for liability to a first late payment penalty are clearly satisfied. The VAT due for the period ending 30 September 2025 was not paid by the due date of 7 November 2025 and remained unpaid beyond day 15. On that basis, liability to a first late payment penalty at the rate of 3 per cent arises automatically under paragraph 5 of Schedule 26.

[40]HMRC further submit that the penalty was properly created and issued through their systems and in accordance with their usual procedures. As set out above, service of the penalty is not in dispute.

[41]Turning to the circumstances of the default, HMRC’s case is that the Appellant’s reliance on the Direct Debit was misplaced because the Direct Debit instruction was not effective for the relevant accounting period.

[42]HMRC explain that, per their internal systems and processes, a Direct Debit payment for VAT is triggered by the submission of the VAT return. Where a Direct Debit instruction is set up on the same day as submission of the return, it cannot operate to collect the liability for that period.

[43]On the evidence of their records, HMRC state that both the VAT return and the Direct Debit instruction were put in place on 6 November 2025. In those circumstances, the Direct Debit could only operate prospectively and could not be used to collect the liability for the September 2025 period.

[44]HMRC rely on their published guidance which states in clear terms that a Direct Debit must be set up at least three working days before submission of the VAT return, otherwise payment will not be taken from the taxpayer’s bank account.

[45]HMRC submit that this guidance is publicly available, clearly expressed and forms part of the information which a reasonable taxpayer is expected to take into account when arranging payment of VAT.

[46]In those circumstances, HMRC contend that the Appellant failed to take reasonable care to ensure that its payment obligations would be met and that the failure arose from its own actions in not allowing sufficient time for the Direct Debit to become effective.

[47]HMRC address expressly the Appellant’s reliance on the confirmation message. They submit that the message is no more than a general acknowledgement that a Direct Debit mandate has been established and an indication that, in appropriate circumstances, payments will be collected using that method.

[48]HMRC do not accept that the message constitutes a representation that payment will be collected in respect of any particular liability or irrespective of the timing of the instruction. They submit that the message must be read in the context of the wider framework governing Direct Debit payments.

[49]HMRC further submit that a reasonable taxpayer would not rely on such a message in isolation but would ensure that the relevant conditions for its operation were satisfied, including those set out in published guidance.

[50]In relation to reasonable excuse, HMRC rely on the established authorities to the effect that a reasonable excuse generally involves something that prevents the taxpayer from complying with their obligations and which is outside their control.

[51]They submit that no such circumstance arises in this case. The Appellant had the means to pay and could have made payment by an alternative method. The failure to do so arose from a misunderstanding of the Direct Debit process, which, they submit, does not amount to a reasonable excuse. HMRC emphasise that mistaken belief, assumption or reliance on internal processes will not ordinarily suffice. The test is an objective one and the conduct of the Appellant falls short of that of a reasonable and prudent taxpayer.

[52]HMRC further submit that, even if there were some initial misunderstanding, the Appellant did not take steps to ensure payment within the 15-day period following the due date and therefore cannot avoid liability to the first late payment penalty.

[53]Finally, HMRC submit that there are no special circumstances within paragraph 13 of Schedule 26 which would justify any reduction of the penalty. They contend that the circumstances relied upon by the Appellant are no more than those ordinarily associated with a failure to comply with payment requirements and that there is no basis upon which their decision not to reduce the penalty could be impugned.

Discussion

[54]There is no dispute that the statutory preconditions for liability to a first late payment penalty under paragraph 5 of Schedule 26 are satisfied. The VAT was not paid by the due date and remained unpaid at the end of day 15.

[55]The issues for determination are therefore whether the Appellant has established a reasonable excuse within paragraph 12, whether the failure was remedied without unreasonable delay and, in the alternative, whether there are any special circumstances justifying a reduction of the penalty.

[56]I begin with the question of reasonable excuse.

[57]HMRC place reliance on the established formulation of reasonable excuse as set out in The Clean Car Co Ltd v Commissioners of Customs and Excise [1991] VATTR 234. I accept that the correct test is whether a reasonable and prudent trader, exercising reasonable foresight and due diligence and having proper regard to their statutory obligations, would have acted in the same way.

[58]HMRC further rely on Perrin v HMRC

[2018] UKUT 156 (TCC)

, in which the Upper Tribunal stated that a reasonable excuse ordinarily involves an unexpected or unusual event, either unforeseeable or beyond the taxpayer’s control, which prevents compliance.

[59]I accept both propositions as statements of general principle. The formulation in Perrin describes the paradigm case but does not confine the concept. The authorities recognise that a reasonable excuse may also arise where a taxpayer acts on a reasonable but mistaken understanding induced by the conduct or communication of HMRC, provided that such reliance is itself reasonable.

[60]It is also well established that the test is objective, albeit applied to the taxpayer’s situation. Read together, the authorities establish that the question is whether the taxpayer’s conduct, viewed objectively and in its full factual context, meets the standard of reasonable foresight and due diligence. That evaluative exercise is one of judgment rather than the application of a rigid rule.

[61]It is not sufficient that the taxpayer acted honestly. The question is whether acting as the Appellant did was reasonable.

[62]HMRC submit that the Appellant was not prevented from paying the tax. That is correct. The Appellant had sufficient funds available and could have made payment by other means. This is not a case in which payment was rendered impossible by external events. The statutory test does not require that the taxpayer be physically prevented from making payment. It is sufficient if, by reason of circumstances for which the taxpayer is not at fault, it was reasonable for the taxpayer to believe that the obligation had been or would be satisfied.

[63]HMRC further submit that the Appellant failed to follow clearly published guidance which required a Direct Debit to be set up at least three working days prior to submission of the return. That is also correct. The guidance is plainly expressed.

[64]If the appeal consisted simply of a taxpayer who had overlooked or misunderstood that guidance, I would have little hesitation in concluding that no reasonable excuse had been made out.

[65]However, that is not the case advanced by the Appellant. The Appellant’s case is that it acted in reliance upon a specific communication from HMRC at the time when the relevant step was taken.

[66]That communication is the confirmation message which states, under the heading “What happens next”, that HMRC “will collect your payments automatically by Direct Debit”.

[67]In my judgment, that message is central to the proper evaluation of the Appellant’s conduct.

[68]I do not accept HMRC’s submission that the message can properly be characterised as no more than a neutral acknowledgement. It is expressed in clear and mandatory terms. In my judgment the message is properly characterised as a representation by HMRC as to how payment will be taken. It is not merely descriptive of the existence of a mandate; it communicates that payments will in fact be collected automatically. The question which then arises is whether it was reasonable for the Appellant to rely on that representation. In my judgment it was, for the reasons which follow.

[69]The message contains no qualification. In particular, it does not state that its operation depends upon any minimum lead time or that it may not apply to the next imminent VAT liability.

[70]The requirement on which HMRC rely is, however, a material one. It determines whether the Direct Debit will operate at all in respect of the relevant period.

[71]In those circumstances, the absence of any reference to that requirement in the confirmation message is significant.

[72]The question is therefore whether a reasonable and prudent taxpayer, having set up a Direct Debit and having received that message, would be entitled to rely on it as indicating that HMRC would collect the payment.

[73]In my judgment, the answer is yes.This conclusion follows from the content of the communication itself and the circumstances in which it was given.

[74]A reasonable taxpayer is entitled to take at face value a clear and unqualified statement made by HMRC as to what will happen next, particularly where that statement is made at the point at which the taxpayer is taking steps to comply with its obligations.

[75]It is not, in my judgment, unreasonable for such a taxpayer to rely on that statement rather than to infer the existence of an undisclosed condition from other sources.

[76]I accept HMRC’s submission that a prudent taxpayer might consult guidance. However, the test is not whether the Appellant did everything that could have been done. It is whether what was done was reasonable. In circumstances where a clear statement has been given, reliance upon it is not unreasonable. Whilst the guidance is clearly expressed, it is generic in nature. The confirmation message is specific to the taxpayer, delivered at the point of action and framed as a statement of what will occur. In those circumstances, it is reasonable for a taxpayer to place greater weight on that specific communication than on general guidance, particularly where the communication contains no reference to such conditions. In those circumstances, the Appellant cannot reasonably be criticised for failing to anticipate that the specific confirmation given to it did not reflect the conditions upon which HMRC now rely.

[77]The Appellant’s conduct must also be viewed in the round. The Appellant did not simply assume that payment would be made. It transferred substantial funds into the relevant account in advance of the due date. That is a positive step directed towards compliance.

[78]The Appellant had also taken steps to re‑establish a Direct Debit following the conclusion of a Time to Pay arrangement. Its conduct, viewed objectively, was directed towards meeting its obligations rather than avoiding them.

[79]I have considered HMRC’s submissions at paragraphs 63 to 79 of their Statement of Reasons, in which they emphasise that misunderstanding, assumption or reliance upon internal processes will not ordinarily amount to a reasonable excuse.

[80]I accept that general proposition. However, the present case is not one of mere assumption. It is a case in which the Appellant relied upon a specific and unqualified statement made by HMRC.

[81]That feature distinguishes the present case from those authorities in which the taxpayer simply failed to acquaint themselves with their obligations or failed to take reasonable care.

[82]The Appellant also relies on the personal circumstances of its director, namely that he is autistic and relies on clear written communication. I accept that evidence as part of the factual matrix. However, my conclusion does not depend upon it. Even applying a wholly objective standard, I consider that the Appellant’s conduct was reasonable.

[83]In those circumstances, I find that the Appellant reasonably believed that HMRC would collect the payment and that this amounts to a reasonable excuse within paragraph 12.

[84]I turn to the requirement that the failure be remedied without unreasonable delay.

[85]HMRC submit that the Appellant failed to make payment within the first 15 days after the due date and that this is sufficient to establish liability.

[86]That submission does not address the statutory structure. The 15‑day period determines when a penalty arises. It does not determine whether a reasonable excuse exists.

[87]Where a reasonable excuse subsists, the relevant question is when that excuse ceased.

[88]On the evidence before me, the Appellant reasonably believed that payment would be collected automatically and did not become aware that it had not been collected until some time after the due date.

[89]HMRC have not identified any earlier point at which a reasonable taxpayer in the Appellant’s position ought to have become aware of the failure. Once the Appellant became aware of the position, it took steps to pay the liability in full within a short period, completing payment by 27 November 2025. There is no evidence that the Appellant was put on earlier notice of the failure. On the material before me, I am not satisfied that there was any unreasonable delay after the reasonable excuse ceased.

[90]I therefore find that the requirement in paragraph 12(3) is satisfied.

[91]Finally, I consider HMRC’s submission in relation to special circumstances.

[92]HMRC submit that there are no special circumstances which would justify reduction of the penalty under paragraph 13.

[93]In light of my conclusion that the penalty does not arise by reason of reasonable excuse, it is not necessary to determine the question of special circumstances. In any event, had it been necessary to do so, I would not have been satisfied that HMRC’s decision not to reduce the penalty was flawed in the public law sense.

Conclusion

[94]For the reasons given above, I find that the Appellant had established a reasonable excuse for the late payment within paragraph 12 of Schedule 26 to the Finance Act 2021.

[95]The appeal is therefore allowed. The penalty of £4,848.54 is cancelled. Right to apply for permission to appeal

[96]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 15 June 2026