A strange case at the Upper Tribunal (UT) regarding the general validity of VAT surcharge liability notices. The VAT surcharge scheme was wound down at the start of the year and all relevant legislation has been repealed from 1 January 2023 so it is odd that a case was brought forward on the general legality of the scheme. The taxpayer had previously lost the case at the First-tier Tribunal but it was decided to try again at the UT. The amount of the surcharge from HMRC was only £721 so it is anticipated that the case was brought forward more for marketing purposes of the accountancy practice behind the client, one would image the client wouldn’t stomach exorbitant fees for such a penalty.
The taxpayer’s representative tried to argue that VAT surcharge liability notices (SLN) could only be issued if both a VAT return was late and the payment was late. This argument was rejected by both tribunals as the relevant legislation plainly stated that if either event were to happen then an SLN could be issued. The legislation clearly used the word ‘or’ when detailing the conditional events that had take place to make a SLN valid. The argument put forward on behalf of the taxpayer was that the word ‘or’ didn’t appear in the legislation where clearly it had been there for many years.
The taxpayer’s representative then tried to argue that for an SLN to be valid an officer of HMRC had to put his or her mind to the assessment, SLNs were automatically generated by computers within HMRC. Again, this argument was rejected, with even the UT bringing to the attention of HMRC legislation that allows HMRC to use computers to perform their functions. This argument was squarely rejected by the UT who agreed with HMRC that even though other legislation clearly allows HMRC to use computers to automatically generate SLNs that having an actual human officer review each and every SLN would be impractical.
The UT dismissed the appeal on all grounds.
The decision can be found at: MJL CONTRACTS LIMITED v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2023] UKUT 00254 (TCC) – GOV.UK (www.gov.uk)
A strange case, there was no need to understand the general legality of the VAT surcharge scheme as it was well understood but since its repeal it is no longer relevant to many taxpayers. The arguments put forward seem implausible at best and reading the UT’s decision one gets the feeling the UT felt their time was wasted.
Please contact us if you have any questions on VAT penalties. Since the start of the year the default surcharge system has been repealed and a points system is now in play. We are experienced with these matters and can help manage your affairs to ensure you do not receive points or penalties.
