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Small Company Blames Bank for VAT Surcharge

In a case which reveals that even the smallest business can triumph in disputes with the tax authorities, a nascent company that blamed its bankers for the late payment of a VAT bill has escaped having to pay a substantial surcharge after convincing the First-Tier Tribunal that it had a reasonable excuse for the delay.

The newly-formed company was hit with a 10% surcharge after its VAT payment arrived with the tax authorities later than it had expected. That, the company argued, was due to the bank’s unilateral decision to make significant changes to its terms and conditions in respect of online payments.

The bank had informed the company of the changes, which resulted in it taking three full working days for the funds to be transmitted, in a brochure. However, in arguing that it had not been given adequate notice of the changes, the company pointed out that the tone of the brochure indicated that the service was being ‘improved’.

The company had been in the habit of making payments in the knowledge that they would be debited from its account on the day that the instruction was given and would arrive in the recipient’s account two days later. In the circumstances, the company argued that it was hard to see how the changes, which resulted in payments taking one day longer, could be described as an improvement.

Allowing the company’s appeal, the Tribunal noted that, although there was nothing illegal in the changes to its terms and conditions made by the bank, customers had not been informed of the date on which they would come into effect. The changes were, in the circumstances, ‘extraordinary and unadvised’ and provided the company with a reasonable excuse for the late payment.