The recession; a reasonable excuse for failure to pay VAT?

In what is rather an unusual case, a North Ayrshire firm have convinced a tax judge that “insufficiency of funds caused by the recession” was a reasonable excuse for failing to make payment of a VAT bill on time.

Scrimsign Micro-Electronics Ltd defaulted in 2012 and faced charges worth thousands of pounds, but are now exempt from the charges as ruled by the tax tribunal judge who said the late payments were due to "factors flowing from the general effects of the recession".  The business lost around £10k in each of the two years ended December 2011.

Between July and December 2012, the firm which has 5 employees incurred three surcharge notices for failure to pay VAT on time.  The company’s MD contacted HM Revenue & Customs but revenue officials refused to accept that the company had a ‘reasonable excuse’ for late payment.

However, Judge Reid concluded that ‘the effects of the recession had travelled far afield and affected many businesses in many different ways at different times’.  The judge allowed the appeal and quashed the surcharged, in the region of £30,000.

Andrew Grant is an expert in VAT matters and comments “Out of 29 cases over a 7 week period, this was the only appeal which was allowed and was an unusual case, very much against the pattern of previous decisions and, as it is a First Tier decision, doesn’t set a precedent. But, where as in this case there are a number of circumstances resulting in default it could be helpful in a defence. However, it is important to speak to HMRC where any business is having trouble meeting its tax liability as this will count if a case needs taking to the Tribunal.”