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VAT surcharge appeal

VAT surcharge appeal

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I have a client who, I now discover, has been paying their VAT one day late repeatedly. They've been setting the payment up on 7th of the appropriate month but it's not left their account until the following day. They've now done this 6 times in a row. The first I realised was when I received a call from HMRC chasing overdue surcharges of 10% and 15% of the two previous quarters' VAT bills, totalling approx £1,000. HMRC advised that they had written to my client numerous times but my client tells me none of these letters arrived. Whilst this cannot be proved I believe it is at least possible as my client has had numerous fraudulent transactions on their business account which stemmed from stolen post. (They have since moved). 

We have appealed the surcharges on the grounds that my client made the payments in good faith, was unaware that there was any issue, and that had HMRC not waived the initial 2% surcharge, the matter would have come to light and been resolved much sooner resulting in a much smaller surcharge. This appeal has been rejected. I am not overly surprised by this, however I feel quite sorry for my client. A £1,000 penalty for a company with a profit before tax last year of £28k for paying VAT one day late, admittedly numerous times, does not really seem comensurate with the offence committed. Is it worth taking this to a tribunal, or am I flogging a dead horse?

Replies (13)

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By sholman
07th Jun 2016 15:55

I think a bit more information is needed. Are you saying that they set the payment up on the 7th and told the bank to make payment on the 8th or did they actually make the payment on the 7th under Faster payment and that it went out then. After a certain cut-off point the bank statement would show it as a next day payment whilst it actually went out on 7th.
Some statements actually show the date and time of the transaction and if this is the right date I suggest producing the evidence to HMRC and they will correct it.

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Replying to sholman:
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By whatdoyoumeanwashe
07th Jun 2016 16:13

The payments were up on 7th set to go out on the 7th, but on the bank statement they always show 8th. Two of the six were actually two days late, but I didn't want to over-complicate the story - those alone would not have led to a surcharge. My client tells me they have noticed this delay with their salary payments too.
However I'm not sure it's relevant as I believe the payment has to hit HMRC on 7th, not just leave the client on 7th. On that note, I was told by the VAT people on the phone that the same was true for filing a VAT return online on HMRC's own website - just because you file it on their website on 7th doesn't mean they receive it on 7th and that's the customer's problem, not HMRC's! At that point I decided the conversation was no longer fruitful...

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chips_at_mattersey
By Les Howard
07th Jun 2016 16:12

On the 'proportionality' issue (Are penalties totalling £1,000 compared to a net profit of £28k?), you cannot win. There is now strong case law on the issue.
On the wider reasonable excuse question, you might re-state the lost post issue; this might lead to some surcharges being removed.
But, regular practice to pay effectively at the last minute will not be regarded postively. The money has to be sent in time to arrive with HMRC by the due date.

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Replying to leshoward:
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By memyself-eye
07th Jun 2016 16:31

The payment is only taken on the 7th IF you set up a direct debit with HMRC. Otherwise it is due on the last day of the month after the VAT period. She was consistently more than a 'day' late.

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Replying to memyself-eye:
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By whatdoyoumeanwashe
07th Jun 2016 16:34

I'm sorry but that is incorrect. 7th is the deadline for manual payments, not the last day of the month after the VAT period. If a direct debit is set up it comes out a few days after 7th.

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By Matrix
07th Jun 2016 16:46

No I don't think there is any reasonable excuse, the client has paid their VAT late on numerous occasions and it says 8th on the bank statements whereas it was due on the 7th so it should have been spotted irrespective of the mislaid notices from HMRC. The surcharge rules are very strict. However I thought they only collected a surcharge if it exceeded £400?

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By mbuffery
07th Jun 2016 16:49

HMRC did have problems accepting faster payments for a time, and this was not publicised. Check the time when the instructions were raised - if early in the day, it is reasonable to expect the payment to reach HMRC the same day. Just one payment qualifying for reasonable excuse is enough to require the surcharges to be recalculated and reduced. Also, if the early defaults were due to HMRC not accepting faster payments, your client would have a reasonable excuse. Gather the evidence - if there is enough to show reasonable excuse for some of the returns, get the reconsideration done and then if necessary appeal to the Tribunal. If the evidence available does not support you, don't bother.

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RLI
By lionofludesch
07th Jun 2016 16:50

Had a client who paid 50 minutes late last year. No concession from HMRC and it wasn't considered big enough to be worth taking it to Tribunal.

Direct Debit's the obvious answer but clients aren't always smart enough to take that option. Mine certainly isn't.

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By sholman
07th Jun 2016 20:31

Following my initial comment about checking the times I would make two extra comments. Firstly your client is entitled to rely on the faster payment system to make instanteous payments and as for the suggestion that they should be made early in the day that is a lot of rubbish. I might not want to make them after perhaps 11pm. HMrc have managed to cancel surcharges of their own volition when they have realised that they were actually made before the deadline ( and I have had this happen before I could even write the letter of objection) and in any case your client should be able to rely on the fact it is instanteous as a reasonable excuse.
I would however suggest once you have the relevant proff of time of payment that in addition to sendind as a review copies are sent to HMRC Vat Banking I think in Wolverhampton for them to review separately.
Unfortunately I am now at home and do not have the relevant address to hand. I will try to look it out

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Replying to sholman:
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By sholman
08th Jun 2016 09:31

I think this is the address you need
HMRC
Corporate Treasury
DRT Birmingham
10th Floor City Centre House
30 Union Street
Birmingham
West Midlands, B2 4AD

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Replying to sholman:
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By whatdoyoumeanwashe
08th Jun 2016 09:44

Many thanks sholman, this is all really helpful. I have sent my client to do some research with their bank.
I should have realised that my angle of whether the punishment fits the crime was not going to cut the mustard!

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chips_at_mattersey
By Les Howard
08th Jun 2016 16:55

A matter of detail: where a taxpayer sets up a Direct Debit, the money is collected three days after the due date.
However, if the Return is submitted late, then the money is collected three days after that date. Thus, a late Return guarantees a late payment.

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By Inspiron246
13th Jun 2016 21:36

I've had equally frustrating experiences with several clients. The HMRC rules are there and spell it out quite clearly that you are allowed 1 calendar month and 7 days to submit and pay your VAT liabilities online. You must allow time for the payment to clear in this period.

The bit that baffles me is that when a Direct Debit is in place for the VAT to be taken, it doesn't leave your bank until the 10th or 12th of the month anyway. Whereas if you don't have a Direct Debit in place, and you pay your VAT manually on the 8th or 9th, HMRC are getting their money even before those who have a Direct Debit in place! So essentially, you submit your VAT at the same time as somebody with a Direct Debit in place, pay your liability earlier than them and get hit with surcharges!

I've had success in the past putting this point across in letters to HMRC stating that the punishment doesn't fit the crime and common sense should prevail.

Good luck with whatever course of action you decided to take.

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