Farrell paid his VAT return late because of problems with his government gateway ID and password. In this case, the FTT was sympathetic and cancelled the penalty.
Peter Farrell (TC07042) had a troublesome time trying to use his ID number and password to electronically pay his VAT due for the period to 31 March 2017. Then he incurred a default surcharge for paying the VAT late, despite his efforts to liaise with HMRC to solve the problem. His VAT return was submitted on 11 May and payment made on 16 May, both of which were late.
Do read the case report for a fascinating account of the telephone conversations and web chats that the taxpayer made with HMRC. The key point was that he first tried to pay his VAT on 5 May 2017, which was comfortably before the deadline of 7 May. Also, the fact that he actually made full payment by 16 May indicates that his failure to pay on time was not linked to major cash flow issues.
In summary, he encountered three issues that will be familiar to many UK taxpayers:
VAT can only be paid electronically. If a direct debit has not been set up, the taxpayer has to go online to make the payment. Farrell had no choice but to access the government gateway to pay the VAT due.
When Farrell attempted to access the government gateway he found that HMRC had changed his ID and password. HMRC admitted in evidence that “the upgrade to the gateway service may have caused problems with user IDs and passwords.”
Farrell found it very difficult to speak to someone who would deal with the problem, rather than seek to transfer the call to someone who will supposedly provide an instant solution. Farrell had no joy during a web chat with HMRC nor with the technical support team, who were not available to speak to until after the due date for the VAT payment.
The VAT at stake was £590 ie a 5% default surcharge for the period in question. This is a relatively small amount but there is a sentence in the case report which, in my view, means that HMRC should have allowed the taxpayer’s appeal and avoided a tribunal hearing: “HMRC apologise for the fact the Appellant was advised that there was no record of the Web chat to which he refers as this has now been traced. Copy extracts are set out below.”
In other words, HMRC was not faultless in this situation and should have held up their hand and withdrawn the surcharge.
A default surcharge can be avoided if a taxpayer has a ‘reasonable excuse’ for late payment of VAT s59(7), VATA1994. The difficulty is that there is no definition in the legislation of what is a reasonable excuse, only what is not, namely reliance on another person to perform a task or a lack of funds to pay the VAT in question.
Even if there is a lack of funds, there is a potential escape route by looking at the reason behind a lack of funds, eg a major customer who normally pays on time suddenly paying late. The challenge for taxpayers is to clearly present their arguments if they think there is a reasonable excuse, as Farrell did with great effect.
In this case, the taxpayer was able to provide evidence to show that he was not at fault, but HMRC’s systems were. This is an important issue: the introduction of Making Tax Digital means that there will almost certainly be some technical glitches with submitting returns and making payments.
Where these glitches occur, I hope HMRC will be more sympathetic in these situations than they were with Farrell. I am confident they will. But if not, then the Farrell case is a good one to quote if you make an appeal against a default surcharge in similar circumstances.
The other key message is that if you have done your best to liaise with HMRC to solve a problem, then you should not be penalised unfairly.