Case Number: TC09528
Appeal reference: TC/2025/000081
Late payment penalty – Schedule 26 FA 2021 – whether the Appellant had a reasonable excuse – yes - appeal allowed
Judgment date: 3 September 2025
Before
TRIBUNAL JUDGE BEDENHAM
Between
MBP EUROPE LIMITED
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondent
With the consent of the parties, the Tribunal determined this appeal without a hearing.
DECISION
Introduction
The Appellant appeals against a VAT late payment penalty in the amount of £12,133.70 charged pursuant to Schedule 26 to the Finance Act 2021 (“the late payment penalty”).
Overview
The Appellant is a taxable person, registered for VAT with effect from 22 February 2006.
The Appellant submits its VAT returns on a quarterly basis.
The Appellant’s VAT return for quarter 09/24 was filed on 28 October 2024 (before the due date). That return declared a liability of £606,685.14. In the normal course of things, that liability would have been due for payment by 7 November 2024 (albeit, as explained below, HMRC’s position is that the Appellant was required to make payments on account on 31 August 2024 and 30 September 2024, with a balancing payment on 30 October 2024). In any event, payment of the £606,685.14 was not made until 18 November 2024.
HMRC assessed the late payment penalty on 20 November 2024 and notified the same to the Appellant on 23 November 2024.
HMRC’s position is that by letter posted on 8 May 2024, they notified the Appellant that it was now in the “Payments on Account regime”. HMRC were unable to provide a copy of the letter said to have been sent to the Appellant but did provide a copy of a specimen/pro-forma letter. HMRC submit that the letter notified the Appellant:
It was now included in the Payments on Account regime.
That its first payment on account was required to be paid by 31 August 2024.
That its second payment on account was required to be paid by 30 September 2024.
That any balancing payment was required to be paid by 31 October 2024.
Payments could not be made by Direct Debit.
At paragraph 72 of their Statement of Reasons, HMRC state “…upon entering into the POA scheme, any direct debits a taxpayer has would be cancelled”.
In view of the above, HMRC submit that the Appellant’s payment received on 18 November 2024 was late, and the Appellant is liable to the late payment penalty. HMRC do not accept that the Appellant has a reasonable excuse for the late payment.
The Appellant’s position is that it did not receive the letter that HMRC say was posted to it on 8 May 2024, and did not know that it has been included in the Payments on Account regime. Further, the Appellant did not know that it’s Direct Debit (which had previously been set up in favour of HMRC) had been cancelled. On discovering that the 09/24 payment had not been made to HMRC by Direct Debit, the Appellant paid the liability without any undue delay. The Appellant submits this amounts to a reasonable excuse.
The core issue in this appeal is, then, whether the Appellant had a reasonable excuse for the late payment.
The Appellant’s submissions on reasonable excuse
In its notice of appeal, the Appellant stated as follows:
“A VAT late payment penalty of £12,133.70 was applied to our VAT account for the quarter ended 30 September 2024. As part of this appeal, we also request that the associated interest charges, including those on late Payments on Account instalments from August 2024 to October 2024, be removed.
We have a reasonable excuse for the late payment of VAT due to circumstances that were outside of our control. Once these ended we made the payment without delay.
We took reasonable care to ensure that we would pay our VAT liabilities on time by setting up a direct debit for payments to be taken automatically by HMRC. We value our compliance with VAT regulations and have a strong track record of timely submissions and payments.
The reasonable excuse for why we did not pay our VAT liability on time for the quarter ended 30 September 2024 is that we did not receive any notice informing us that we had been moved to the Payments on Account regime for that period onwards, meaning our direct debit would be cancelled as a result. In addition to this, we received no separate notice from HMRC that our direct debit was being cancelled. The combination of these factors meant that we had no way of knowing that our VAT payments would not be made on time via direct debit until after the fact.
Upon realising there was an issue we immediately acted to resolve the situation, contacting HMRC via telephone on 18 November 2024 when we discovered the issue and making a manual payment the same day to settle the outstanding liability in full.
We have since been informed by HMRC that a letter regarding Payments on Account instalments becoming due was sent to us on 3 May 2024. This letter did not arrive at our office. In HMRC’s review conclusion letter they state “this item was not returned by the post office there is no reason for us to suppose that you did not receive it”. We disagree with this statement and believe the letter may have been lost in the post. HMRC have not provided any tracking evidence to show that the letter was indeed delivered. Our initial penalty appeal letter written to HMRC was sent tracked delivery via the post office and this did not arrive, subsequently confirmed as lost in the post, which illustrates that not every letter posted arrives with the recipient.
Compounding the issue we were also not separately notified that our direct debit had been cancelled, or that we had overdue payments resulting from the missed Payment on Account instalments in August and September 2024 which would have alerted us there was an issue so we could make payment before a late payment penalty could be assessed.
Given the letter of 3 May 2024 did not arrive and the lack of any other communication, we had no reasonable way of making our VAT payments on time from the first instalment payment due date in August 2024 until 18 November 2024 when our usual VAT payment was not collected alerting us to the issue so that we could immediately pay the outstanding VAT balance.”
The Appellant also provided the Tribunal with:
Photographs of “post trays” at the Appellant’s office.
A copy of the Appellant’s “clear desk” policy.
A witness statement from Lateefa Hesling, an Accounts Payable Supervisor employed by the Appellant.
In her witness statement, Ms Hesling stated:
She is responsible for collecting and distributing incoming post to the Appellant’s Finance Team.
No letter or correspondence from HMRC relating to entry into the Payment on Accounts regime was received by the Appellant.
The Appellant submitted that it has a structured approach to internal post management and that had any letter from HMRC relating to entry into the Payment on Accounts regime been received, it would have been acted upon by the Appellant.
The Appellant further submitted that it conducts a review of its cash position every Monday. Direct Debit payments are usually debited a number of days after the payment due date (which the Appellant understood to be 7th November 2024 – which was a Thursday) so the fact that the payment of the 09/24 liability had not been taken by way of Direct Debit was not apparent when the cash review was conducted on Monday 11 November 2024. However, this missed payment was noticed during the review on Monday 18 November 2024, and the Appellant immediately contacted HMRC and made payment.
HMRC’s submissions on reasonable excuse
HMRC submitted:
“…the facts asserted by the Appellant, do not objectively constitute a reasonable excuse”.
HMRC’s internal records prove that a letter notifying the Appellant of its inclusion in the Payments on Account regime was posted to the Appellant’s address on 8 May 2024.
Other post sent by HMRC to the Appellant’s address was received by the Appellant.
“The Appellant has not supplied sufficient evidence to displace the statutory presumption in the form of evidence of previous problems with post delivered by Royal Mail or evidence of investigations by Royal Mail into missing post”.
If the Appellant’s Direct Debit had still be in place, the 09/24 liability would have been debited from the Appellant’s account on 11 November 2024. “A prudent taxpayer would naturally verify that the payment has been taken from their bank account”.
Relevant law
Paragraph 5 of Schedule 26 to the Finance Act 2021 provides:
5(1)A penalty is payable under this paragraph if–
(a)the tax due is not paid in full before the end of the 15 day period, and
(b)the 15 day time to pay condition is not met.
5(2)If the tax due is paid in full after the end of the 15 day period but before the
end of the 30 day period, the amount of the penalty is amount A.
5(3) If the tax due is not paid in full before the end of the 30 day period, the
amount of the penalty is–
(a)if the 30 day time to pay condition is met, amount A, and
(b)if the 30 day time to pay condition is not met, the total of amount A and amount B,
(but see paragraph 7).
5(4) Amount A is 2% of so much of the tax due as is unpaid at the end of the 15 day period.
5(5) Amount B is 2% of so much of the tax due as is unpaid at the end of the 30 day period.
Paragraph 12 provides:
12(1) Liability to a penalty under this Schedule does not arise in respect of a failure to make a payment if the person satisfies HMRC (or on appeal, the tribunal) that the person had a reasonable excuse for the failure.
12(2) For this purpose–
(a)an insufficiency of funds is not a reasonable excuse unless attributable to events outside the personʼs control,
(b)where the person relies on another person to do anything, that is not a
reasonable excuse unless the first person took reasonable care to avoid the failure,
and
(c)where the person had a reasonable excuse for the failure but the excuse has ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.
In Perrin v HMRC [2018] UKUT 0156 (TCC), the Upper Tribunal provided guidance as to how the FTT might best approach a “reasonable excuse” case. I have followed the suggested approach.
Paragraph 13 of Schedule 26 to the Finance Act 2021 permits HMRC to apply a special reduction where they are satisfied there are special circumstances.
It is for HMRC to prove that the penalty has been correctly charged. It is for the Appellant to establish that a reasonable excuse exists. The standard of proof is the balance of probabilities.
DISCUSSION AND DECISION
On the basis of the internal records provided to the Tribunal by HMRC, I accept that on 8 May 2024, HMRC posted to the Appellant a letter to notify it that it was now included in the Payments on Account regime.
However, the material provided to the Tribunal by the Appellant supports that the Appellant had a structured approach to post management and, had a letter from HMRC been received by the Appellant, it would have been acted upon. I am therefore satisfied that:
the payments on account letter was not received by the Appellant (and the Appellant did not therefore know that the due date for payment had been altered and its Direct Debit had been cancelled).
the Appellant did not know that the 09/24 payment had not been taken by Direct Debit until it conducted its cash review on 18 November 2024.
the Appellant did not know it had been included in the payments on account regime until it spoke with HMRC on 18 November 2024 (on discovering that its 09/24 payment had not been debited).
The Appellant remedied its failure by making the 09/24 payment on 18 November 2024 – the same day it found out that its payment had not been taken by Direct Debit.
I am satisfied that the facts set out at paragraph 23 above amount to a reasonable excuse and that, once the reasonable excuse ceased on 18 November 2024, the Appellant made payment to HMRC without unreasonable delay.
I reject HMRC’s contention that the Appellant should have realised earlier than 18 November 2024 that the 09/24 payment had not been debited. I accept the Appellant’s explanation that it conducts a weekly cash review every Monday, and consider such an approach to be entirely reasonable. I accept that the failed payment would not have been apparent on the review conducted on 11 November 2024 (given Direct Debit payments are typically not taken by HMRC until 3 working days after the due date – which the Appellant understood to be Thursday 7 November 2024).
In the above circumstances, I allow the Appellant’s appeal.
Right to apply for permission to appeal
This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.
Release date: 03rd SEPTEMBER 2025
