In McNamara Joinery Limited v HMRC9, the FTT allowed an appeal against a default surcharge of £490.62 levied by HMRC for the late payment by the due date of 7 February 2016 of the appellant’s VAT return for the period ended 31 December 2015.


The VAT Regulations 1995, specifically regulation 25(1), provide that returns should be made not later than the last day of the month following the end of the period to which it relates. It also permits HMRC to vary this period.

The appellant appealed the surcharge on 14 April 2016 and submitted in his Notice of Appeal that its agent had, on 12 February 2016, contacted HMRC and secured a two week extension in which to pay the outstanding VAT which the appellant was unable to pay due to unexpected cash-flow problems caused by the temporary default of a debtor. These debts were paid during the two week extension.

HMRC argued that the VAT return and payment in respect of the period to 31 December 2015 were due by 7 February 2016 and the return was received in time on 2 February 2016, however, the payment was received 19 days late on 26 February 2016. A surcharge of 10% of the outstanding amount was therefore levied in accordance with section 59(5)(c) VATA 1994.

Documents submitted to the FTT showed that the appellant had submitted the return in time but paid the amount late on the previous three occasions. The first failure attracted a notice warning that future failures may result in a default surcharge being levied. The second attracted a surcharge at 2%, however, HMRC waived this as it was under £400 and they waived the surcharge of 5% for the third failure as again the surcharge was under £400.

HMRC acknowledged that the appellant’s agent attempted to make contact prior to the due date, however, it maintained that the appellant or its agent should reasonably have expected delays in the run up to the due date. HMRC therefore argued that there was no reasonable excuse for the late payment and that agreeing a time to pay request did not offset the issue of the surcharge as it was made after the due date.

FTT’s decision

The FTT said that the only power it had in these circumstances was to discharge the penalty if it was wholly disproportionate to the gravity of the offence or plainly unfair. In the present case, it did not consider that the surcharge of £490.62 was wholly disproportionate or plainly unfair. It was clear that the appellant had defaulted in paying the VAT but the question was whether the appellant had a reasonable excuse for that default.

Even though the FTT did not consider insufficiency of funds due to non-payment by debtors to be a reasonable excuse for late payment, it did consider that the repeated unsuccessful attempts made by the appellant’s representative to contact HMRC were unexpected and unforeseeable. The submissions from HMRC that the appellant or its agent should have expected delays were dismissed. The FTT was of the view that HMRC was in a much better position than any taxpayer to know when busy times were likely to occur in its call centres. This was information which taxpayers could not reasonably be expected to know.

The FTT therefore concluded that the appellant had established a reasonable excuse for the late VAT payment for the period ending 31 December 2015 and the appeal was allowed.


HMRC tends to take a very strict line when dealing with default surcharge cases. The problems of VAT compliance often fall to be borne by smaller enterprises which are more susceptible to problems of cash flow. In this case the taxpayer took the correct course in attempting to agree a short extension with HMRC but found the mechanics of doing so (ie speaking to HMRC on the telephone) impossible in the time available. In this case the FTT is to be commended for taking a sensible and pragmatic view of the practical difficulties faced by many taxpayers when attempting to contact HMRC.

A copy of the decision can be found here.