Neutral Citation: [202] UKFTT 01251 (TC)
Case Number: TC09664
By remote video hearing
Appeal reference: TC/2024/03351
VAT LATE PAYMENT PENALTIES - whether appellant had a reasonable excuse – yes – appeal allowed
Judgment date: 16 October 2025
Before
TRIBUNAL JUDGE MICHAELA SNELDERS
SIMON GILLESPIE-KHAN
Between
DDK PROJECTS LIMITED
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: Kay O’Reilly of Cube Partners Accountants
For the Respondents: Sharon Hancox, litigator of HM Revenue and Customs’ Solicitor’s Office
DECISION
Introduction
With the consent of the parties, the form of the hearing was video using the Teams video platform. A face to face hearing was not held because it was considered more expedient and cost effective to conduct the hearing remotely.
Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.
The Appellant (DDK) appeals against two penalties totalling £25,307.98 for late payment of VAT due for the quarter ending 31 January 2024 of £629,251.95.
Background and facts
We heard evidence from Timothy Dixon, Director of DDK, and Kay O’Reilly and Alex Munro, both of Cube Partners.
We also had a hearing bundle of 85 pages and an authorities bundle of 170 pages.
From all the above we make the following findings of fact.
DDK has been registered for VAT since 5 March 2021. Since registering for VAT, DDK submits VAT returns and pays VAT quarterly.
At the relevant time DDK had three directors, two of whom were non-executive directors. Only one of the directors, Mr Timothy Dixon, was responsible for all company operations and was the only person who had bank signatory rights.
The company had grown rapidly in the three years from March 2021, with turnover in the first year at £1.2M and turnover in the third year at £9.2M.
DDK outsourced the bookkeeping, including the payment of wages, suppliers, VAT and corporation tax and preparation of year accounts to Cube Partners who appointed an employee, Nicola Wilkinson, to carry out DDK’s day to day bookkeeping.
Each week Ms Wilkinson prepared a payment run listing the payments due to suppliers. To this list Ms Wilkinson would add the VAT manually. This payment run would then be sent to Mr Dixon to check and then authorise the bank to make the payment. Any suppliers who did not get paid in a payment run would automatically appear in the next payment run. But other payments, such as VAT, would need to be added manually.
Mr Dixon’s partner was due to give birth to their first baby on 18 February 2024. Mr Dixon planned to take two weeks part time paternity leave once the baby was born. He planned to work part time from home, attending calls and team meetings but avoiding site visits where possible. No arrangements were made to cover for Mr Dixon’s absence as he expected to continue to work and to deal remotely with urgent matters or anything that only he could deal with during this period.
Mr Dixon’s partner was overdue but went into labour on 23 February 2024. We heard detailed evidence from Mr Dixon as to the circumstances of the birth which HMRC did not challenge and which we accept. We do not consider it necessary to go into the detail in this decision except to acknowledge that the circumstances were very traumatic, that Mr Dixon reasonably feared for a period of time that he may lose both his partner and baby and that as a result of what was ultimately a successful emergency Caesarean on 24 February 2024, Mr Dixon’s partner could not walk for the first couple of days due to the pain, had to have complete bed rest for the first two weeks, could not lift anything for a number of weeks and was in any event instructed not to lift anything heavy (including her baby daughter) for the first six weeks after the birth.
Mr Dixon’s priority was his family at this point and as a result of the above, not only was he understandably traumatised by the events of the birth, he also looked after his partner and baby full time once they were discharged from hospital on 26 February 2024. This took up all of his time and was a lot more intense than he had anticipated. Consequently he was not able to oversee the business during this period as he had intended.
On 1 March 2024, Ms Wilkinson submitted DDK’s VAT return for the period ending 31 January 2024 showing VAT due from DDK on 7 March 2024 of £629,251.95. Ms Wilkinson also set up the payment run for 5 March 2024, which included the VAT payment of £629,251.95. DDK had sufficient funds in its bank account at this time to make this payment.
This payment run including the VAT payment which is the subject of this appeal was sent to Mr Dixon for approval on 1 March 2024, four days after his partner and baby were discharged from hospital and while he was caring full time for both of them. As a result Mr Dixon did not approve this pay run and as a result the suppliers and HMRC did not get paid on 5 March 2024 as intended.
As stated above, the suppliers who had not been paid automatically appeared on the following week’s pay run, but the VAT payment needed to be re-entered manually.
Around the 5 March 2024, Ms Wilkinson went unexpectedly on compassionate leave, because her mother, who had been diagnosed with lung cancer in February 2024, rapidly declined and in early March was given only weeks to live. Ms Wilkinson’s mother died in March 2024 and Ms Wilkinson did not return to work until late April 2024. As a result of this unfortunate circumstance, Ms Wilkinson was not at work and therefore did not notice that the VAT payment had not been made on the 5 March 2024 and would therefore need to be manually re-entered for the next week’s payment run.
On 18 March 2024 Mr Dixon returned to work.
On 22 March 2024 a penalty of 2% became due (15 days after the due date).
On 28 March 2024 HMRC wrote to DDK notifying them that their VAT payment for the quarter ended 31 January 2024 had not been received and that interest had become payable on it of £2,798.10.
On 6 April 2024 a further penalty of 2% became due (30 days after the due date).
After 6 April 2024 the overdue VAT was subject to 4% penalty per annum calculated on a daily basis for each day it was overdue including the date of payment.
DDK did not receive any correspondence from HMRC about the unpaid VAT due on 7 March 2024 until the letter they sent dated 28 March 2024, arrived at Cube Partners on 8 April 2024.
On 8 April 2024 DDK paid HMRC £633,382.45 (the unpaid VAT of £629,251.95 plus interest)
On 9 April 2024 HMRC issued a penalty to DDK of £25,170.07 for the late payment of VAT, being the 15 days and 30 days late payment penalties.
On 12 April 2024 HMRC issued the daily penalty of 4% per annum for paying two days after the 30 days of £137.91.
DDK requested a formal review of HMRC’s decision to issue the penalties and HMRC issued its Review Conclusion Letter on 9 May 2024 upholding HMRC’s decision to issue the penalties.
On 7 June 2024 DDK submitted its appeal to this Tribunal.
The law
Legislation
Penalties for late payment of VAT for accounting periods beginning on or after 1 January 2023 are governed by Schedule 26 to the Finance Act 2021 and references to paragraphs in this decision are to paragraphs of that Schedule unless otherwise stated.
Paragraph 4 provides that no penalty is payable for the late payment of VAT provided that it is paid within 15 days of the due date.
Paragraph 5 provides that a “first penalty” is payable where the VAT remains unpaid more than 15 days after the due date. This penalty is calculated at a rate of 2% of the outstanding tax that remains unpaid after 15 days from the due date and a further 2% of the outstanding VAT that remains unpaid 30 days from the due date.
A “second penalty” then becomes payable pursuant to paragraph 8 at a daily rate of 4% per annum on the outstanding balance, for every day that the VAT due remains unpaid from and including 31 days after the due date up to an including the date that the VAT is paid.
Paragraph 18 provides that HMRC may assess a penalty for the late payment of VAT up to 2 years after the VAT became due.
Paragraph 12 provides that a penalty doesn’t arise under Schedule 26 where the person who would otherwise be liable to the penalty satisfies HMRC, or on appeal, the tribunal, that they had a reasonable excuse for the failure to pay on time. Paragraph 12 then goes onto provide:
“(2) For this purpose—
(a) an insufficiency of funds is not a reasonable excuse unless attributable to events outside the person’s 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.”
Paragraph 13 gives HMRC the power to reduce the penalty where there are special circumstances as follows:
“(1) If HMRC think it right because of special circumstances, they may reduce a penalty under this Schedule.
(2) In sub-paragraph (1) ”special circumstances” does not include—
(a) ability to pay, or
(b) the fact that a potential loss of revenue from a taxpayer is balanced by a potential over-payment by a taxpayer.
(3) In sub-paragraph (1) the reference to reducing a penalty includes a reference to—
(a) staying a penalty, and
(b) agreeing a compromise in relation to proceedings for a penalty.”
Paragraph 21 provides that, where the appellant appeals to the Tribunal against HMRCs decision on “special circumstances”, the Tribunal can only apply a different level of reduction to the penalty than that applied by HMRC, if it considers that HMRC’s decision is “flawed” in the light of principles applicable in proceedings for judicial review. These principles are broadly:
That all relevant factors must be taken into account;
That no irrelevant factors should be taken into account; and
The decision must be one that a reasonable decision maker, having regard to the available evidence, could make.
The burden of proof is on HMRC to show that the penalties are correctly charged. The burden then shifts to the Appellant to demonstrate that a reasonable excuse exists for the late payment of the VAT liability or that there are special circumstances that justify a reduction. The standard of proof is the ordinary civil standard, which is on the balance of probabilities.
Reasonable Excuse
What constitutes a reasonable excuse is not defined in the legislation. In the case of Christine Perrin v Commissioners of Revenue & Customs [2018] UKUT 156 (TCC) (Perrin) the Upper Tribunal provided clear guidance to the First- tier Tribunal on how it should approach the consideration of a “reasonable excuse” defence as follows:
“81. When considering a “reasonable excuse” defence, therefore, in our view the FTT can usefully approach matters in the following way:
(1) First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may include the belief, acts or omissions of the taxpayer or any other person, the taxpayer’s own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts).
(2) Second, decide which of those facts are proven.
(3) Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, it should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the FTT, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”
(4) Fourth, having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time (unless, exceptionally, the failure was remedied before the reasonable excuse ceased). In doing so, the FTT should again decide the matter objectively, but taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times.”
DDK’s submissions
DDK do not dispute that the VAT for the period ending 31 January 2024 should have been paid by 7 March 2024 but was not paid until 8 April 2024, so it was paid 32 days late. DDK also do not dispute that HMRC has accurately calculated the first and second VAT penalties.
DDK believes however that it had a reasonable excuse for the late payment of the VAT and that the VAT was paid without unreasonable delay when the reasonable excuse ceased. Alternatively, DDK submit that there were special circumstances that justify a substantial reduction of the penalty.
Further DDK submit that the following are relevant factors that should be taken into account to establish that it did have a reasonable excuse:
The company was still new and growing at the time. It had grown quite rapidly and Mr Dixon was at the point in its development, where he still felt he needed to maintain overall control of the company’s spending and had not yet moved to delegating roles to others.
Mr Dixon’s partner was pregnant with their first child and at the time he had not contemplated that he would not be in a position to continue to manage the business remotely during his paternity leave or that it would last for longer than the anticipated two weeks.
HMRC’s online guidance suggests that it will send a reminder that the VAT is late before the 15 days has expired but HMRC did not send anything to DDK until 28 March 2024, when the 15 days had already passed. In addition that letter did not arrive until 11 days later on 8 April 2024. This may have been in part because of the Easter weekend but given that second class post usually arrives within three days of posting, even taking into account the Easter weekend this was a significant delay.
As soon as DDK received the letter from HMRC on 8 April 2024 they paid the outstanding VAT on the same day.
DDK and Chase Partners have both since put procedures in place to avoid this happening again.
DDK has set up a direct debit to pay its VAT. DDK has also employed a commercial director and given Chase Partners authority to authorise bank payments on its behalf.
Chase Accountants has allocated a person to monitor payments that could drop off the pay run, as in this case, to make sure that the payments actually go out from the client’s account.
In over 30 years this is the first time that Chase Partners has appealed a VAT late payment penalty, because where VAT is not paid on time because of lack of funds they agree a payment plan.
DDK has never before or since been late paying its VAT.
It was the combination of factors that led to the payment being made 32 days late. If any one of those factors had not occurred, the payment would have been made before any penalty arose.
HMRC’s contention
Mr Dixon knew that he would be taking a period of paternity leave. Childbirth is unpredictable so he should have made alternative arrangements as a contingency before he went on paternity leave.
DDK has three directors, all of which are jointly responsible for paying the VAT on time and the company as a whole should have taken responsibility and made arrangements for the VAT to be paid on time in the event of Mr Dixon becoming unable to authorise the payment for any reason.
Reliance on a third party is not a reasonable excuse unless the first person took reasonable care to avoid it. The bookkeeper did what she was required to do and DDK should have put procedures in place to cover the eventuality that Mr Dixon was not available to sign off the payment, for example setting up a Direct Debit or having a secondary signatory in Mr Dixon’s absence. While the bookkeeper may have noticed the non-payment if she had not been off work, the process failed because Mr Dixon failed to authorise the payment, not because the bookkeeper was not available.
Even if DDK did have a reasonable excuse in Mr Dixon’s unexpected complete absence from work due to the difficult birth and his partner’s inability to care for herself or their baby, that excuse ceased when Mr Dixon returned to work on 18 March 2024. However, the VAT remained unpaid until 8 April 2025 (three weeks later). So DDK did not remedy the failure without unreasonable delay once the reasonable excuse ceased.
discussion and our view
Applying the three step approach in Perrin to this appeal we find as follows.
Step 1 – Facts relied upon.
The facts that DDK assert give rise to a reasonable excuse are contained in paragraphs 12-25 and 42 above.
Step 2 – Which of those facts are proven
We found all the witnesses to be honest and credible and HMRC did not challenge any of the evidence put forward by them. We therefore find all the facts relied upon by DDK as proven.
Step 3 – Whether proven facts amount objectively to a reasonable excuse:
In considering whether the proven facts amount to an objectively reasonable excuse we find that the following factors are of particular relevance:
DDK was a new and growing business, over which Mr Dixon had overall control and it was not therefore unreasonable for him to be the only person authorised to approve non-standard outgoings from the bank account.
He had engaged a trusted and competent accountancy firm to file his VAT return and administer the VAT payment which they did diligently and in the normal course of events there had not been any issues or previous default in the VAT payments.
Mr Dixon thought that he had made adequate plans to deal with his period of paternity leave in that he would continue to deal remotely with matters that required his personal attention and could not be delayed while on paternity leave.
Mr Dixon and his partner were both first time parents and were naïve as to the potential complications of child birth. It had simply not occurred to him that he would be unable to continue managing the business remotely during his period of paternity leave or that that his paternity leave would last any longer than two weeks.
Mr Dixon was understandably traumatised by the circumstances of his daughter’s birth and being confronted with the prospect of losing both his partner and his daughter.
It is also understandable that Mr Dixon prioritised caring for his partner and daughter in the period after the birth, when his partner was unable to lift anything or care for herself. It is also understandable that during this time his focus was not the business and he was relying on his team and accountants to alert him to anything really urgent that he needed to attend to.
We also accept that, although it was not specifically her responsibility to do so, had Ms Wilkinson not been unexpectedly absent from work from early March until late April 2024, she would have alerted Mr Dixon to the fact that the VAT had not been paid and that he would have taken the short time necessary to authorise the payment.
When Mr Dixon did return to work on 18 March 2024 he remained unaware that the VAT was overdue until HMRC’s letter dated 28 March 2024 finally arrived on 8 April 2024 at the company address which is that of Chase Accountants. At this point Chase Accountants notified Mr Dixon and the VAT was paid on the same day.
Each of the factors (1) the complications with the birth and the impact that this had on Mr Dixon; (2) the need for Mr Dixon to care full time for his partner and daughter for almost four weeks after the birth; (3) Ms Wilkinson’s unexpected absence from work around the time of the VAT payment and when Mr Dixon returned to work; and (4) HMRC’s failure to notify DDK before 9 April 2024 that the VAT was overdue; are unlikely to individually amount to a reasonable excuse. Further if any one of these factors had not been present in this case we consider that it is highly likely that DDK would have paid the VAT due before a penalty became chargeable.
We find however that the combination of these factors in this particular case amounts to a reasonable excuse for the period from the date that the VAT became due until DDK received the letter from HMRC alerting it to the non-payment on 9 April 2024.
Step 4 – Was the failure remedied without unreasonable delay
DDK paid the VAT due on the same date that the reasonable excuse ceased. We therefore find that the failure was remedied without unreasonable delay once the reasonable excuse ceased.
Conclusion
For all the reasons above we ALLOW the 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: 16th OCTOBER 2025