Judgment summary
This case concerned an appeal by Gagajoo Gardens & Landscapes Limited against VAT default surcharges totalling £4,525.52 and Schedule 26 Finance Act 2021 penalties totalling £1,650.09 (as itemised in the judgment). The sole director, Mr Clayton, did not attend the hearing, citing recent surgery, and the Tribunal decided to proceed in his absence under Rule 33.
The Tribunal first considered whether to permit the Appellant's late appeal against the default surcharges, applying the Martland three-stage test. It found the delay, between 2.5 and over 4 years past the statutory deadline, to be serious and significant, and that the Appellant had not established a good reason for the delay. Permission to bring the late appeal was refused.
The Tribunal then considered the Schedule 26 penalties on their merits, applying the Perrin approach to reasonable excuse. It found that the Appellant had not established a reasonable excuse based on Mr Clayton's health issues, marital breakdown, or alleged financial difficulties, noting that the business continued to trade and file VAT returns on time throughout. The appeal was dismissed in full [57].
Background
Mr Clayton, sole director and shareholder of the Appellant, filed an application on 13 March 2025 to appeal charges, penalties and interest relating to PAYE and VAT defaults [3]. The judgment deals only with VAT default surcharges and penalties, as the Tribunal has no jurisdiction over interest [3].
The Appellant has been VAT registered since 01 August 2008 and part of the default surcharge regime since 2014 [5]. Default surcharges under s.59(5)(d) VAT Act 1994 were issued for periods 02/21 to 08/22, totalling £4,525.52 [6]. Schedule 26 Finance Act 2021 penalties were issued for periods 05/23 to 08/24, totalling £1,650.09 [7].
Connect Accountancy, the Appellant's agent, wrote to HMRC on 19 November 2024 seeking to appeal penalties and interest from 1 October 2023 on the basis of reasonable excuse [8]. HMRC did not accept the reasons given [9]. A statutory review was requested on 10 January 2025, and a review conclusion letter issued on 27 January 2025 removed the penalty for period 11/23 but upheld all other penalties and surcharges [10]-[11]. HMRC confirmed its decision remained unchanged on 25 February 2025 [12].
Core dispute
The core dispute was twofold: first, whether the Appellant should be granted permission to bring a late appeal against the default surcharges, given a delay of between 2.5 and over 4 years past the statutory time limit [22], [26]; and second, whether the Appellant had established a reasonable excuse for late payment of VAT liabilities giving rise to the Schedule 26 Finance Act 2021 penalties [46].
Mr Clayton relied on a range of reasons including sepsis and hospitalisation in October 2023, marital breakdown, knee replacement surgery, lack of work and cashflow, the impact of COVID-19 and the Ukraine war, and alleged misallocation of payments by HMRC [28]. HMRC contended that none of these reasons amounted to a reasonable excuse, and that the delay in appealing was serious and significant [26], [45].
Court findings
The Tribunal found that Mr Clayton had not adequately explained his absence from the third scheduled hearing and proceeded in the Appellant's absence pursuant to Rule 33, being satisfied it was in the interests of justice to do so [17]-[19].
Applying Martland, the Tribunal found the delay in appealing the default surcharges, between 2.5 and over 4 years, to be serious and significant [26]. It found that Mr Clayton had not adequately explained why the appeal itself was brought late, noting the company continued operating and filing VAT returns throughout [33]-[36]. It was not persuaded the Appellant's substantive case was overwhelmingly strong and declined to give weight to the merits of the appeal [40]. Permission to bring the late appeal against the default surcharges was refused [43].
On the Schedule 26 penalties, applying Perrin, the Tribunal found that Mr Clayton's health issues, though genuine, did not prevent the Appellant continuing to trade, file VAT returns on time, and meet other obligations, and therefore did not establish a reasonable excuse [51]. It found no evidence of financial difficulties beyond bare assertion, and noted the Appellant had not shown any insufficiency of funds was unavoidable [52]. It found the Appellant did not contact HMRC prior to default, and delayed contact until November/December 2024, which was not objectively reasonable [53]-[54]. The Tribunal agreed with HMRC that payment allocations followed standard practice absent specific instructions [55]. It found no basis to disturb HMRC's decision on special reduction, referencing Barry Edwards v HMRC [2019] UKUT 137 (TCC) as confirming the penalty regime is fair and proportionate [56].
Outcome
The Tribunal refused permission for the Appellant to bring a late appeal against the default surcharges [43] and dismissed the appeal against the Schedule 26 Finance Act 2021 penalties in full [57].
Major issues / areas of contention
- Whether the Tribunal should proceed in the absence of the Appellant's director under Rule 33 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 [18]-[19].
- Whether permission should be granted for the Appellant to bring a late appeal against default surcharges issued under s.59(5)(d) VAT Act 1994, applying the Martland three-stage test [21]-[43].
- Whether the length of delay in appealing the default surcharges (2.5 to over 4 years) was serious and significant [22], [26].
- Whether the Appellant established a good reason for the delay in bringing the appeal [27]-[36].
- Whether the first and second Late Payment Penalties for period 05/23 and the first Late Payment Penalties for 08/23, 02/24, 05/24 and 08/24 were correctly assessed under paragraphs 5(1) and 8 of Schedule 26 Finance Act 2021 [46].
- Whether the Appellant established a reasonable excuse for late payment of VAT liabilities under paragraph 12 of Schedule 26 Finance Act 2021, applying the Perrin approach [46], [50]-[54].
- Whether, if a reasonable excuse existed, the failure was remedied without unreasonable delay once the excuse ceased [46].
- Whether HMRC's decision not to apply a special reduction under paragraph 13 of Schedule 26 Finance Act 2021 was flawed [46], [56].