VAT default surcharge – and there’s more!

In March 2019, we covered the case of Porter & Co and its unsuccessful attempt at removing a default surcharge. The two cases covered below confirm that the tribunal continues to dismiss appeals in respect of these.

The first case heard was that of Secco Muro Ltd (TC07120) (“Secco”) and the second, heard by the same Tribunal judge on the same day, was PVC Trade Supplies Limited (TC07121) (“PVC”).

Secco argued that it had cashflow difficulties. PVC maintained that had it known the date before which it was required to make the VAT payment, it would have done so by online banking.

The tribunal ruled that on both occasions, the appeals be dismissed.

The facts: Secco

Secco was a plastering contractor since September 2014. It was VAT registered and was in the default regime since 10/15. In respect of returns 04/16 and 07/16, payment of the VAT was late.

An officer of the appellant commented that it had become aware in 2016 from “…June onwards” that there was an issue with regards to its largest customer, Seren Contractors Ltd (“Seren”).

Furthermore, in email correspondence with HMRC, he was quoted as saying:

“…if I am honest, the workforce always comes first before me…we just figured that the VAT can wait a week or two, but men have to be paid as they have families to feed…”

In addition, Secco’s bank statements showed that a large amount was paid by Seren into its bank account on 7 September 2016, the due date for payment of the 07/16 VAT return.

Valid surcharge liability notices were served by HMRC. Secco appealed the penalties to the tribunal.

Secco’s grounds of appeal included the following:

  • Its biggest client had just gone into administration;
  • Other customers were late paying their bills;
  • PAYE and corporation tax had been paid on time; and
  • “It seems a little unjust and unfair”.

The facts: PVC

PVC was in the double-glazing business and was registered from 2014. It persistently made late payments of VAT and was in the default regime from period 01/15.

PVC director Jonathan Thomas contacted HMRC on the 4 or 5 September 2017 with the intention of paying the VAT due. However, he explained that there was an issue with HMRC’s computer and was therefore unable to make payment. The HMRC officer informed Mr Thomas that he had a couple more days before he needed to pay.

Payment was made on 8 September by a Visa debit card. HMRC then issued a surcharge liability notice to PVC. PVC requested an unsuccessful review and subsequently appealed.

PVC’s grounds of appeal were:

  • Although the payment was late, had it known the date that the VAT had to be paid by, it would have used online banking; and
  • The payment was one day late so the penalty was disproportionate.

The decisions

In the case of Secco, the tribunal concluded that the default surcharge should stand in light of the following:

  • The winding up petition served on Seren happened at a date after the due dates for paying the respective VAT returns;
  • Secco’s officer became aware of the cashflow difficulties of Seren in June 2016 and never contacted HMRC to make them aware of the situation. Had he done so, a time to pay arrangement could have been negotiated; and

Had Secco wished to discharge its VAT liability for VAT period 07/16, it would have been able to do so, as the funds had been present in its bank account. However, it appeared to HMRC that a conscious decision was taken to pay its staff before HMRC. Accordingly, this was: “…a foot shooting exercise as far as reasonable excuse is concerned”.

In the case of PVC, the tribunal concluded that due to PVC being in the default surcharge regime for a number of years and “knowing the ropes”, its reasons for paying late did not constitute a reasonable excuse. Accordingly, the default surcharge should remain.

Finally, the tribunal decided that in both cases, that the penalty was not disproportionate.

Who is potentially affected?

As with the Porter & Co case, it is important that all returns and payments are made in good time to ensure that no default surcharge is triggered. We consider this worth highlighting as we continue to receive queries with regard to default surcharges being raised by HMRC.

Where the VAT owed cannot be paid by the due date or where difficulties arise, HMRC’s Business Payment Support Service should be contacted, following a conversation with your VAT adviser. Furthermore, as referred to in paragraph 4.5 of VAT Public Notice 700/50, HMRC advise as follows:

“We calculate a surcharge on the amount of VAT not paid on time. You may be able to reduce the size of any surcharge or avoid a surcharge altogether. Do this by paying as much as you can by the due date.”

For more information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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