A significant Default Surcharge case

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I have to confess to not reading all Default Surcharge FTT decisions. They rarely raise any new point.

This case is different. The Appellant taxpayer was Godolphin Management Company Ltd, which is involved in the racehorse industry. The company was represented by Counsel, which is very rare for Default Surcharge cases. But the penalty for their P09/16 default was £217,435.79, charged at 5%.

The company was not used to paying VAT. From 1994 to early 2016, its VAT Returns always showed net zero payments, because of the way its transactions with its non-UK owner company were structured.
HMRC challenged the arrangement, meaning that positive liabilities arose. For the monthly period P09/16, the liability was well over £4m as a number of their racehorses were moved during the month.

Defaults arose in relation to P06/16, P08/16, and P09/16. The P06/16 default was accepted, the P08/16 surcharge was around £8,000. So, attention was given to the P09/19 surcharge.

The company raised three arguments;

  1. The payment for the Return was submitted at such a time and in such a manner that it was reasonable to expect that it would be received by HMRC in time;
  2. There was a reasonable excuse for the late payment; and
  3. The surcharge was disproportionate.

Do make a note of these. Most taxpayers pursue either 2 or 3, and do not realise they can argue 1, nor that they can raise multiple arguments. Nor do they realise that they can raise an appeal in relation to a preceding surcharge.

In this case, the company was successful in that it argument 1 applied to the P08/16 surcharge. The surcharge for P09/19 was reduced from 5% to 2%. Not a bad result.

It did not succeed on the disproportionate argument.

You can read the decision here: http://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06515.html



About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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