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VAT penalty cancelled on misunderstood direct debit

A VAT penalty was cancelled when the directors reasonably believed that the VAT would be paid by direct debit.

A company suffered massive cashflow problems when a customer became insolvent with a bad debt of £160,000. It made various time to pay arrangements with HMRC, and similar arrangements with other creditors to stay in business.

To pay the VAT, one director personally borrowed £8,000, all of which was evidence from bank statements.

Sufficient funds were in place by 7 February 2018 to meet the VAT liability. When the funds were not taken, a director telephoned HMRC and made a Visa payment on 9 February 2018. HMRC issued a 15% penalty for being two days late.

Some amounts were paid to HMRC by the National Direct Debit Service (NDDS). This is separate from the normal direct debit scheme. It is used for specified agreed amounts and dates. It is used by taxpayers who have agreed a Time To Pay arrangement.

HMRC argued that NDDS is materially different from direct debit, and that the taxpayer was negligent in not appreciating this.

It was noted that HMRC's website says:

    “Is Direct Debit payment the same as National Direct Debit Service/System (NDDS)?

     Yes, this is the same service.”

This was sufficient to show that the directors had reasonable excuse for the late payment and for the penalty to be cancelled.

The case report can be downloaded from here.

Norfolk Premier Coachworks Ltd [2019] TC 7126 [19.05]