In a case which revealed that the public interest in efficient tax collection can sometimes be tempered by mercy, a small business that failed to pay its VAT on time has won an appeal against a £5,600 penalty after its principal director suffered a series of disasters in his personal life.
There was no dispute that the company had paid its VAT about a week late and that this was not the first time that it had defaulted. More than £35,000 in VAT had been due shortly after the Christmas period and HM Revenue and Customs had imposed a 15 per cent surcharge.
Ruling on the company’s appeal, the First-tier Tribunal (FTT) rejected arguments that the penalty was disproportionate to the brevity of the delay and noted that the director had been well aware of the date on which payment was due and had been clearly warned after the previous defaults of the consequences of delay.
The poor economic climate and the company’s cash-flow difficulties also did not amount to an acceptable excuse for late payment. However, in allowing the company’s appeal, the FTT noted that it was not precluded from considering the underlying factors that had resulted in the default.
The director had been going through a painful divorce at the time and his domestic affairs were in a state of flux. His 16-year-old son had ‘gone missing’ on Christmas Day and he had subsequently learned from social services that the teenager had been using hard drugs. In the circumstances, his mind had not been on his business at the relevant time and he had a ‘legitimate excuse’ for the late payment.