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Acceptable reasons for not paying your VAT on time

Adrian Mooy - Monday, March 09, 2020
You were late with your VAT payment because your bookkeeper was ill. HMRC will automatically issue a penalty notice. The First-tier Tribunal (FTT) recently ruled on whether reliance on a third party was a reasonable excuse for the late payment.


Disputed penalty


Eglas Ltd offers landscape gardening services via its sole director, Mr Evans (E). Like many small businesses E concentrated on the firm’s core business and used a qualified specialist (G) to manage its bookkeeping and accounts. When a cycling accident left G unable to work for nearly seven months, E filed the VAT returns on time, but payment slipped and he ended up with a late payment penalty (surcharge) of nearly £600. E said G’s long absence on sick leave was a reasonable excuse for the late payments. HMRC said that E had ten weeks to make alternative arrangements and so didn’t have a reasonable excuse. E asked the First-tier Tribunal (FTT) to rule on the matter.


HMRC will only accept an appeal against a penalty if it considers it to be reasonable. However, it can’t arbitrarily dismiss an appeal; you either have to formally withdraw it or refer it to a tribunal to decide. The definition of “reasonable excuse” has always been a grey area. HMRC’s view is unfairly narrow and so can be worth challenging. HMRC only accepts an excuse is reasonable if the event which triggered the penalty was unexpected, unforeseen and out of your control, like the death of a close relative or last minute problems with IT.


On its website under the heading “What will not count as a reasonable excuse” HMRC explicitly says that failure by someone else on whom you’re relying isn’t a valid excuse but tribunals have contradicted this view on several occasions.


In E’s case G’s role was vital because E’s knowledge of Sage was “non existent”. He relied on G totally. Until G’s accident she had always prepared VAT returns and accounts and made sure VAT was paid on time. In her absence, E’s accounting was “paralysed”. HMRC said E had chosen to rely on G, so had to take the risk involved in that decision. It said E didn’t exercise reasonable foresight or due diligence in carrying out his tax responsibilities. The FTT disagreed.
The FTT heard that E had tried to obtain alternative help and had no luck because Sage temps weren’t available locally. E showed he knew compliance was a problem without G, and made efforts to put that right, including contacting a nearby university and other training centres, and making enquiries through a chain of accountancy offices - all without success. Either the distances were too far for daily travel or there was no one available. Despite all his efforts, E only managed to get a Sage temp for a day - and they had taken a day’s holiday from their usual job to do it. E’s excuse was reasonable despite HMRC’s attempt to narrow the definition. Don’t be put off by HMRC’s hard line on excuses. If you can show that you took all reasonable steps to prevent a delay, be prepared to call HMRC’s bluff and ask the FTT to rule.


If you need to plug a gap in key staff but are unsuccessful and this results in late VAT or other tax returns, keep records of what steps you took to find a replacement. If you can show a genuine skills shortage but HMRC refuses to accept the reason the FTT has ruled that the excuse can be reasonable.


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