Judgment summary
The appeal concerned late payment penalties charged under Schedule 26 to the Finance Act 2021 for the VAT period 07/25 (1). The VAT for that period should have been paid by 7 September 2025, but the Appellant paid it in two parts on 20 and 22 October (2, 3).
Both parties agreed the VAT was paid late and the penalties were correctly raised and notified (4). The sole issue was whether the Appellant had a reasonable excuse for the late payment under paragraph 12(1) of Schedule 26 (5, 6).
The Tribunal applied the four-stage test from Perrin v HMRC [2018] UKUT 156 (TCC) (8) and considered the principle from Mirza v HMRC [2022] UKUT 000291 (TCC) that reliance on incorrect advice can be a reasonable excuse, provided the reliance was genuine and reasonable (11).
Having accepted the Appellant's factual account as proven (20, 21), the Tribunal found that the director's reliance on the advisor's email was genuine (24), but concluded it was not objectively reasonable to rely on the wording of the advice, which referred expressly only to the submission of the return, without seeking further clarification (26, 27, 28). The appeal was dismissed (29).
Background
The Appellant's VAT for the period 07/25 should have been paid by 7 September 2025 (2). The Appellant paid the VAT in two parts, on 20 and 22 October (3).
The Appellant had been registered for VAT in June 2025 and received information at that time stating that a penalty could be issued if the deadline for submission and payment was not met (16).
The Appellant's director, Mr Zhao, was uncertain whether the Appellant's supplies were chargeable or exempt, a question he considered not straightforward, and he believed for most of the period to 16 October 2026 that the supplies were exempt (20(1), 20(2)). He was aware of and concerned about the 7 September 2025 deadline, knowing detailed advice would not arrive in time, and he asked the advisor what to do about it (20(3), 20(4)). He understood the advisor's response to mean that no payment should be made and acted on that understanding (20(5)).
The advice received stated: "I appreciate that the VAT return deadline is today, but given the effective date of registration is January 2023, this would be a 31-month return. I would suggest we don't rush the submission until we've had a chance to properly review your supplies. In the meantime, HMRC will issue a central assessment, which will be reversed once the VAT return is submitted or if the registration ultimately needs to be cancelled." (25).
On 16 October 2025 the Appellant received clear advice as to the correct position, after which it immediately sought to recover the VAT from its customer, filed its return on 21 October 2025, and paid the tax on 20 and 22 October (13).
Core dispute
The parties agreed that the VAT was paid late and that the penalties had been correctly raised and notified (4). The sole issue before the Tribunal was whether the Appellant had a reasonable excuse for the late payment, under paragraph 12(1) of Schedule 26 to the Finance Act 2021 (5, 6).
The Appellant argued that it had sought advice from an objectively well-qualified professional advisor on what to do about the imminent deadline and that it was reasonable to rely on that advice even if incorrect, and that this did not fall within paragraph 12(2)(b) of Schedule 26 because it had not relied on someone else to do something, but had sought specific advice on what to do (9, 10). It relied on Mirza v HMRC [2022] UKUT 000291 (TCC) (11) and argued that Mr Zhao reasonably understood the advice to mean no payment should be made until liability was established (12).
HMRC accepted that the Appellant genuinely wanted to reach the correct answer on its liability but submitted that it was not reasonable for the Appellant to have understood or relied on the advice as it did, particularly given that the Appellant knew of the risk of penalties from its VAT registration information, knew the sums involved were substantial, and could have sought clarification sooner (15, 16, 17, 18, 19).
Court findings
The Tribunal applied the Perrin v HMRC [2018] UKUT 156 (TCC) four-stage approach to reasonable excuse (8) and accepted as proven the facts relied on by the Appellant, including Mr Zhao's confusion over the exempt status of supplies, his awareness of and concern about the deadline, his request for advice, and his understanding of the advisor's response (20, 21).
The Tribunal accepted, following Mirza v HMRC [2022] UKUT 000291 (TCC), that reliance on professional advice is capable of being a reasonable excuse, and found that Mr Zhao's reliance on the advice was genuine (23, 24).
The Tribunal found that although the advice expressly referred only to submission of the return and not to payment, it was possible to read the advice, particularly its second sentence, as covering both (26). However, considering the Appellant's awareness of potential penalties for missing the deadline and the large sums involved, the Tribunal held it was not objectively reasonable to rely on this wording without seeking further clarification from the advisor (27). The Tribunal saw no evidence that the Appellant sought such clarification or confirmation (28).
Outcome
The appeal was dismissed (29). The Tribunal found that the Appellant did not have a reasonable excuse for the late payment of VAT for the period 07/25, so the late payment penalties charged under Schedule 26 to the Finance Act 2021 stood.
Major issues / areas of contention
- Whether the Appellant had a reasonable excuse for late payment of VAT for period 07/25 under paragraph 12(1) of Schedule 26 to the Finance Act 2021.
- Whether reliance on professional advice as to the VAT return and payment deadline amounted to a reasonable excuse under the Perrin v HMRC test.
- Whether the Appellant's understanding of the advisor's email, that no payment should be made pending establishment of liability, was objectively reasonable.
- Whether paragraph 12(2)(b) of Schedule 26, concerning reliance on another person, applied to the Appellant's circumstances.
- Whether the Appellant ought to have sought further clarification from its advisor given the known penalty risk and the scale of the sums involved.