Low value Default Surcharges

Readers will be familiar with the Default Surcharge regime. Surcharges are issued for late submission of Returns and payments. The first default triggers a warning letter (a Surcharge Liability Notice, or SLN). Subsequent defaults generate surcharges up to a maximum of 15%.

What is not always appreciate is that surcharges calculated at 2% and 5% are not assessed where the surcharge would be less than £400. See Notice 700/50, para 4.5. This is purely concessionary. My opinion is that the cost to HMRC of issuing the surcharge and then dealing with any dispute that arises will outweigh the value of the surcharge. (I may be wrong!) But the default is recorded, nevertheless.

I have occasionally come across the situation where the taxpayer is not assessed at 2% and 5%. He therefore assumes that his Returns and payments have been made on time. (Although he should have read HMRC correspondence to the contrary!) The next default triggers a surcharge at 10%, which comes as a nasty shock.

This is essentially what happened to Hong Jiang. He routinely made his payments late and was unaware (he said) that he was collecting defaults until he received a surcharge at 10%.

As you would expect, he lost his appeal.

http://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07530.html