A company has succeeded in reducing VAT default surcharges of more than £9,000 after the First-tier Tribunal (FTT) found that HM Revenue and Customs (HMRC) had not demonstrated that a notice in respect of an earlier default surcharge had been correctly issued.

The company had paid VAT after the due date in respect of three periods between August 2021 and August 2022. HMRC imposed default surcharges under Section 59 of the Value Added Tax Act 1994 in respect of those periods. After reviews conducted by HMRC at the company's request resulted in the surcharges being upheld, the company appealed to the FTT.

As the three late payments followed two earlier defaults in respect of the February and May 2021 periods, the surcharges were calculated at rates of 5 per cent, 10 per cent and 15 per cent respectively. The question of whether the earlier default surcharges had been correctly issued therefore arose. The FTT also considered whether the company had a reasonable excuse for its failure to make the payments on time.

The company stated that it had not been aware of any of the default surcharges because it had not received the surcharge notices. It had not realised that the address it had provided to HMRC, at a warehouse which had later ceased to be occupied, would be used for correspondence. The company's start-up during the COVID-19 pandemic had been challenging. It had also changed its banking arrangements and payments from its new bank took longer than expected to process.

The FTT found that the last four of the five surcharge notices had been properly posted to the address held by HMRC. The company had not received them because it had not promptly notified HMRC of its change of address, not because they were not correctly served. However, HMRC did not have a record of when the first surcharge notice, for the February 2021 period, had been printed and despatched. The FTT concluded that HMRC had failed to demonstrate that the first surcharge notice was sent, and it had therefore not been correctly issued.

The FTT acknowledged the difficulties involved in setting up the company during the pandemic, but did not consider that they constituted a reasonable excuse. The FTT also noted that the company could have checked its new bank's processes to ensure that the payments would be made on time.

As HMRC had failed to demonstrate service of the first surcharge notice, the surcharge rate applicable to the three periods that were the subject of the appeal would be reduced to 2 per cent, 5 per cent and 10 per cent.