- Delayed VAT Repayment and Resulting Penalty: ESC Studios Ltd experienced a significant delay in receiving a VAT repayment from HMRC, which was due to the production of three films simultaneously. Despite timely and thorough responses to HMRC’s inquiries and ongoing communication regarding cash flow issues, the repayment was not processed until November 2024, leading to late payment of VAT due for the quarter ending June 30, 2024.
- FTT Ruling on Reasonable Excuse: The First-tier Tribunal (FTT) recognized that ESC’s situation was distinct from typical traders, as the company had to utilize its working capital to meet tax obligations while waiting for the repayment. The FTT noted that while insufficiency of funds generally isn’t a valid excuse, in this case, ESC had exercised reasonable foresight and diligence, thus establishing a reasonable excuse for the late payment.
- Consideration of Special Circumstances: The FTT found that although ESC had not formally requested a deferral of the VAT due, it was reasonable for the company not to do so given its expectations about the repayment timeline. The tribunal suggested that had they not acknowledged a reasonable excuse, they would have recognized special circumstances justifying a reduction of the penalty to zero.
Source KPMG
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