TGS Construction Services v Revenue & Customs

VAT � default surcharge � reasonable excuse � insufficiency of funds � underlying cause of insufficiency of funds giving rise to reasonable excuse � C&E Commissioners v Steptoe considered � appeal allowed

This is an appeal against a VAT default surcharge (and associated surcharge liability notice extension) imposed on the Appellant partnership (�TGS�) by a Notice of Assessment of Surcharge and Surcharge Liability Notice Extension dated 12 June 2009 (�the Notice�).

After previous defaults (which were not disputed), TGS were late in paying their VAT liability of �10,440.49 as shown on their VAT return for the VAT accounting period ended 30 April 2009 and, as a result of those previous defaults, a default surcharge at the rate of 15% of the VAT paid late was imposed by the Respondents (�HMRC�).� The VAT was due to be paid by 31 May 2009 and it was paid in two instalments, one of �5,000 on 26 June 2009 and one of �5,440.49 on 30 July 2009.� TGS�s VAT return had been submitted on time.

The Notice advised TGS that a default surcharge of �1,566.07 had been imposed, and warned that any further default in respect of a VAT accounting period ending up to 30 April 2010 would give rise to a further default surcharge at the 15% rate.

TGS appealed against the Notice.� They claimed first that Ms Skinner had contacted HMRC before the due date for payment of the VAT and agreed a �time to pay� arrangement which had been honoured.� We found however that any conversation between Ms Skinner and HMRC took place after the due date for payment of the VAT and therefore could not be relied on to cancel the Notice under HMRC�s published �time to pay� policy.