HMRC delays are held to be reasonable excuse for a taxpayer’s late payment of VAT, a tribunal has ruled. Kate Garcia and Thomas Wilkinson reflect on the verdict
In ESC Studios Ltd v HMRC [2025] UKFTT 747, the First-tier Tribunal (FTT) allowed a taxpayer’s appeal against a penalty for late paid VAT, holding that HMRC’s more than six-month delay in repaying VAT to the taxpayer constituted a reasonable excuse.
Background
The taxpayer filed its VAT return for the quarter ended 31 March 2024, showing a repayment claim of £478,893.36 due from HMRC.
HMRC, not unreasonably, carried out checks in relation to the repayment claim – the checks involved raising various queries (the first of which were raised on 22 May 2024) which the taxpayer promptly answered. The checks also involved a four-hour investigative meeting with the taxpayer. In the meantime, the taxpayer filed their VAT return for the quarter ended 30 June 2024, showing a net VAT liability of £225,639.93; this was due for payment by no later than 7 August 2024.
The taxpayer intended to use the VAT repayment it was expecting from HMRC as a result of the 31 March 2024 return to satisfy the net VAT liability due to HMRC. However, correspondence with HMRC dragged on and the repayment was not forthcoming – indeed, the repayment was only received on 8 November 2024 after HMRC raising, and the taxpayer responding to, further queries.
Once the repayment was received, the taxpayer satisfied its net VAT liability to HMRC. However, this payment was made late and HMRC had already raised a penalty in the sum of £9,025.59 as a result. The taxpayer appealed the penalty on the basis that, in view of the circumstances preceding the payment, either it had a reasonable excuse for the late payment and/or the penalty should be reduced because of the special circumstances the taxpayer faced.
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