Pauline Luzha v The Commissioners for HMRC

Introduction

1. This is an appeal brought by the Appellant (Pauline Luzha) against late submission penalties charged under Schedule 24 to the Finance Act 2021 (“FA 2021”) in respect of the late submission of VAT returns.

2. The late submission penalties charged to the Appellant and under appeal are as follows: Tax Period Date of Penalty Description Amount (£) 03/23 15/05/2023 Late Submission Point 1 06/23 15/08/2023 Late Submission Point 2 03/24 15/05/2024 Late Submission Point 3 06/24 15/08/2024 Late Submission Point 4 06/24 15/08/2024 Late Submission Penalty £200 09/24 11/11/2024 Late Submission Point 5 09/24 11/11/2024 Late Submission Penalty £200 Total £400

3. The Appellant is a taxable person, having been registered for the purpose of VAT with effect from 4 November 2022. The Appellant is the sole proprietor of a travel agency. The Appellant submits VAT Returns on a quarterly basis.

4. The Appellant requested a review of the decision to issue the financial penalties for the VAT periods 6/24 and 9/24. In her request for a review for the period 6/24, the Appellant stated this: “Reason for Appeal I did not submit late – I was asked to submit by 7 August 2024 and I did this – my software for MTD did not allow me to submit prior to this. Reason for making a late appeal Really struggling to understand VAT return and didn’t realise that there was an issue, sorry.”

5. The Appellant’s request for a review for the VAT period 9/24 was expressed in very similar terms.

6. O 13 February 2025, the Respondent (HMRC) issued a Review Conclusion letter upholding the financial penalties, stating that the Appellant had not demonstrated any reasonable excuse for the failure to submit VAT returns on time for the periods in question.

7. On 17 February 2025, the Appellant submitted a Notice of Appeal to this Tribunal. The notice of appeal raises three points: (a) The Appellant had appointed an accountant (John Stewart) who did not submit the VAT returns on time. The Appellant has since appointed a new accountant. (b) The Appellant used ‘Xero’ software to submit VAT returns but was unable to submit the returns online until after the due dates. (c) The Appellant’s business is struggling and does not receive any support. Issues

8. The issues that we must consider are: (a) Whether the late submission penalty points awarded to the Appellant were correctly issued. (b) Whether the late submission financial penalties charged to the Appellant were correctly issued. (c) Whether the Appellant had a reasonable excuse for the late submission of any of their VAT returns. (d) If a reasonable excuse existed, whether the return was received without any unreasonable delay once any excuse had ended.

9. The onus of proof is for the Respondents to show that the penalties have been correctly charged. The burden then shifts to the Appellant to demonstrate that a reasonable excuse exists for late submission.

10. The standard of proof is the ordinary civil standard, namely, the balance of probabilities. Legal Framework

11. Section 25(1) of the Value Added Tax Act 1994 (“ VATA 1994 ”) requires that a taxable person shall make a VAT return for a prescribed accounting period at such time and in such a manner as determined by regulations.

12. Regulation 25(1) of the Value Added Tax Regulations 1995 (“VAT Regulations 1995”) requires that a return shall be submitted to HMRC by all VAT registered persons not later than the last day of the month following the end of the period to which it relates.

13. HMRC have discretion under regulations 25A(20) of the VAT Regulations 1995 to allow extra time for the submission of a return and the making of payment when these are carried out by electronic means. For online returns, the standard deadline is extended by seven calendar days (except for Payment on Account and Annual Accounting businesses, which does not apply in this case).

14. Section 116 and Schedule 24 FA 2021 introduced a new points system and penalties for failure to submit returns by the due date. This regime came into force on 1 January 2023.

15. In summary, the late submission penalty regime is a points-based system. When a taxable person fails to submit a return, a nil return or repayment return, on or before the due date, they become liable to and will be awarded a penalty point: paragraphs 5 and 6, Sch. 24 FA 2021. Once that taxable person has received the maximum number of penalty points, they become liable to a financial penalty, and for each subsequent failure whilst they remain at that maximum number of points.

16. The Appellant in this case files her returns on a quarterly basis. The maximum penalty points incurred before a financial penalty applies is 4 points: paragraph 5(9)(b), Sch. 24 FA 2021.

17. A financial late submission penalty of £200 is chargeable when a person is late in submitting their VAT return and the maximum number of penalty points is reached: paragraph 15, Sch. 24 FA 2021.

18. Paragraph 19, Sch. 24 FA 2021 provides that liability to a penalty point or financial penalty does not arise in relation to a failure to make a return if the person satisfies HMRC or on appeal, the Tribunal, that they had a reasonable excuse for the failure and they put right the failure without unreasonable delay after the excuse has ended.

19. The legislation also specifically provides that two situations are not capable of being considered a reasonable excuse (paragraphs 19(2)(a) and 19(2)(b)): (a) An insufficiency of funds, unless attributable to events outside the Appellant’s control; (b) Reliance on another person to do anything, unless the person took reasonable care to avoid the failure.

20. Paragraph 19(2)(c) states that where the person had a reasonable excuse for the failure but the excuse has ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.

21. There is no statutory definition of reasonable excuse, which “is a matter to be considered in the light of all the circumstances of the particular case” ( Rowland v HMRC (2006) Sp. C 548, at paragraph 19).

22. Further, as Judge Medd QC explained in The Clean Car Co Ltd [1991] BVC 568: ‘One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do? Put in another way, which does not I think alter the sense of the question; was what the taxpayer did not an unreasonable thing for a trader of the sort I have envisaged, in the position that the taxpayer found himself, to do?’

23. We are also required to approach the question of a reasonable excuse in line with the Upper Tribunal decision in Perrin v HMRC [2018] UKUT 0156 (TCC): “81. When considering a “reasonable excuse” defence, therefore, in our view the FTT can usefully approach matters in the following way: (1) First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may include the belief, acts or omissions of the taxpayer or any other person, the taxpayer’s own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts). (2) Second, decide which of those facts are proven. (3) Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, it should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the FTT, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?” (4) Fourth, having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time (unless, exceptionally, the failure was remedied before the reasonable excuse ceased). In doing so, the FTT should again decide the matter objectively, but taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times.”

23. Whether a person has a reasonable excuse will depend on the particular circumstances in which the failure occurred and the abilities of the person who has failed. What is a reasonable excuse for one person may not be a reasonable excuse for another. Discussion and Decision

24. In summary, the due dates for submitting the VAT returns under appeal are as follows: (a) VAT period 03/23 – the due date for the VAT return and payment was on 7 May 2023. The return was received on 2 June 2023 (over three weeks late). (b) VAT period 06/23 – the due date for the VAT return and payment was 7 August 2023. The return was received on 3 October 2023 (nearly two months late). (c) VAT period 03/24 – the due date for the VAT return and payment was 7 May 2024. The return was received on 8 July 2024 (two months late). (d) VAT period 06/24 – the due date for the VAT return and payment was 7 August 2024. The return was received on 19 August 2024 (nearly two weeks late). (e) VAT period 09/24 – the due date for the VAT return and payment was 7 November 2024. The return was received on 11 November 2024 (4 days late).

25. There can be no doubt that the Appellant was late in submitting her VAT returns for the periods in question. Indeed, notwithstanding what was initially stated in her request for a review, the Appellant herself now accepts that the returns were late. She confirmed during the hearing that she was not disputing that the returns were late but stated that she had initially relied on her accountant to file the returns, and later, that she had tried to use Xero to file her returns, but had been unable to do so by the due dates.

26. The Appellant also accepts that she received the penalty point notices and the financial penalty notices. We have also seen the records produced by HMRC confirming the dates that the notices were issued and the address to which they were posted (the Appellant’s address). The issue of service of the notices is therefore not in issue.

27. We therefore find that the late submission penalty points awarded to the Appellant, and the late submission financial penalties charged, were correctly issued.

28. The issue before us therefore is whether the Appellant had a reasonable excuse for the late submission of any of the VAT returns under appeal, and if a reasonable excuse did exist, whether the returns were received without any unreasonable delay once any excuse had ended.

29. The Appellant has raised three matters which may constitute a reasonable excuse: (a) The Appellant appointed an accountant who did not submit the VAT returns on time. She has since appointed a new accountant. (b) The Appellant used ‘Xero’ software to submit VAT returns, but was unable to submit the returns online until later. (c) The Appellant’s business was struggling and she does not receive any support.

30. We are satisfied that the Appellant did initially arrange for an accountant to assist her with the VAT returns, from around November 2022 until she parted ways with him in March 2024 (according to what the Appellant has told us). Neither the Appellant (nor her accountant) submitted the VAT returns on time.

31. However, we are not satisfied that this ground constitutes a reasonable excuse in the circumstances of this case. It appears to us that the Appellant simply assumed that the accountant would file her returns, on time, without taking any necessary steps to ensure that he would actually do so.

32. This was despite the first penalty points notice having been issued to the Appellant on 15 May 2023. That notice had also been issued to her accountant. As was accepted by the Appellant during the hearing, however, she simply assumed that the accountant would deal with it and that he would submit future returns on her behalf, on time. She said she “left it” to the accountant to deal with the issue. She did not chase him or take any other steps to ensure the failure would not reoccur after the first notice was received, nor indeed thereafter, when further notices were received.

33. Paragraph 19(2)(b) of Sch. 24 FA 2021 specifically states that a taxpayer’s reliance on another person to do anything will not amount to a reasonable excuse, unless the taxpayer took reasonable care to avoid the failure. We are not satisfied in this case that the Appellant took reasonable care to avoid the failure.

34. As for the use of the Xero software, whilst we accept the Appellant’s evidence that she did then subscribe to the software, from May 2024 until August 2024, we have not been provided with a clear explanation, or any evidence whatsoever, as to why it then transpired that the Appellant could not submit her VAT returns on time. Furthermore, at no point did the Appellant contact HMRC in an attempt to seek assistance with the filing of her returns, or to explain any difficulties, if there were issues with her submitting returns on time using the software. We are therefore not satisfied that this ground constitutes a reasonable excuse in the circumstances of this case.

35. Whilst we accept that setting up and running a business as a sole trader is no easy task, the Appellant decided to set up a travel agency as a sole trader and it was incumbent on her to ensure that she had the appropriate arrangements in place to complete and file her VAT returns on time, in compliance with the legislation. The responsibility for this fell squarely on her shoulders.

36. It was not reasonable for the Appellant to simply leave the filing of her VAT returns to the accountant (initially), and thereafter, to sign up to Xero but then not seek further assistance in a timely manner if she had difficulties filing the returns on time via Xero. These fall short of the reasonable actions of a responsible trader conscious of and intending to comply with their obligations regarding tax.

37. We therefore find that the Appellant did not have a reasonable excuse for the late submission of any of the VAT returns under appeal.

38. The appeal is dismissed. Right to apply for permission to appeal

39. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 26 th FEBRUARY 2026