Splend SPV (UK) Ltd v The Commissioners for HMRC

Introduction

1. With the consent of the parties, the form of the hearing was V (video) conducted on Teams. The documents to which we were referred are the Hearing Bundle comprising 239 pages.

2. Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

3. The appeal is against late payment penalties ( LPPs ) charged under Schedule 26 Finance Act 2021 ( Schedule 26 ) in respect of late payment of Value Added Tax ( VAT ). The Appeal

4. The matters for the Tribunal to consider were: (1) Whether the LPPs were validly raised and issued; (2) Whether the Appellant had a reasonable excuse for the late payment of its VAT liability; (3) If there was a reasonable excuse, whether the payment was received without unreasonable delay after the excuse had ended; and (4) Whether HMRC’s decision in relation to special reduction of the penalties was flawed. Validity of the LPPs

5. The burden of proof was on HMRC to show that the penalties had been correctly charged.

6. Under paragraph 5(1) of Schedule 26, “a penalty is payable…if (a) the tax due is not paid in full before the end of the 15 day period [following the due date for payment], and (b) the 15 day time to pay condition is not met”.

7. It was accepted by both parties that the Appellant was required to make a payment of VAT in the sum of £534,314.87 by 7 November 2024 in respect of the period 09/24 and that the Appellant did not make this payment until 23 January 2025.

8. It was also accepted by both parties that no application had been made for a ‘Time to Pay’ agreement.

9. There was no dispute between the parties that the criteria for issuing the LPPs had been met. Neither was there any dispute that the amount charged under the LPPs had been calculated correctly.

10. HMRC submitted that the LPP notifications issued complied with the requirements of paragraph 16(3) of Schedule 26 and provided specimen copies of the form of the notices to evidence this, noting that copies of specific notices were not retained.

11. HMRC cited section 98 of VATA 1998: “Any notice, notification, requirement or demand to be served on, given to or made of any person for the purposes of this Act may be served, given or made by sending it by post in a letter addressed to that person or his VAT representative at the last or usual residence or place of business of that person or representative.”

12. HMRC submitted that the LPP notices were sent by post to the Appellant at the address held on file for the Appellant by HMRC and provided evidence in the form of a report (the CDIO Report) of a search conducted by an HMRC Officer within the Chief Digital & Information Office (CDIO) of HMRC’s records.

13. HMRC cited section 7 of the Interpretation Act 1978 : “Where an Act authorises or requires any documents to be served by post (whether the expression serve or the expression give or send or any other expression is used) then, unless the contrary intention appears, the service is deemed to be effected by properly addressing, pre-paying and posting a letter containing the document and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.”

14. HMRC submitted that since their systems and the reports generated by them as evidence demonstrated that the LPP notices had been posted to the Appellant at 393 Edgeware Road, London NW2 6LN, in the absence of proof to the contrary, the LPP notices were deemed to have been properly served.

15. The Appellant asserted that the LPP notices had not been received. However, no evidence was provided in support of this assertion and the representatives of the Appellant acknowledged that they were unable to rebut the statutory presumption of service. Reasonable Excuse

16. Paragraph 12 of Schedule 26 provides that: “(1) Liability to a penalty under this Schedule does not arise in respect of a failure to make a payment if the person satisfies HMRC (or on appeal, the tribunal) that the person had a reasonable excuse for the failure. (2) For this purpose- (a) an insufficiency of funds is not a reasonable excuse unless attributable to events outside the person’s control, (b) where the person relies on another person to do anything, that is not a reasonable excuse unless the first person took reasonable care to avoid the failure, and (c) where the person had a reasonable excuse for the failure but the excuse has ceased, person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased”.

17. The burden of proof was on the Appellant to show that it had a reasonable excuse for not paying the VAT on time.

18. The reasons given by the Appellant for the late payment were: (1) Reviews initiated by HMRC in relation to subsequent VAT periods 10/24 and 11/24 delayed repayments to it by HMRC totalling approximately £1.7million. (2) Taking into account the amounts due to the Appellant from HMRC, the net position was that HMRC owed the Appellant (not the Appellant owing HMRC). (3) The Appellant did not receive notice of HMRC’s review of the subsequent months’ VAT returns that resulted in these repayments being held up. (4) The Appellant had always been fully compliant in the past, in fact filing its VAT returns and making payments early. (5) Another company connected with the Appellant was due a significant VAT repayment from HMRC for the quarter ended 30 September 2024 which HMRC paid late. Had it been paid when due, the result would have been to enable the Appellant to pay its VAT for the period 09/24 within 15 days of the due date so that the LPPs would not have arisen under paragraph 5(1) or 8(1) of Schedule 26. The Appellant and the connected company were not in a VAT Group together but their businesses were very much connected. The Appellant and the associated company did not receive notice of this repayment being delayed. (6) The Appellant assumed the clock would stop and penalties be suspended pending the outcome of the reviews. (7) The outcome of the reviews was to uphold and agree the Appellant’s VAT position as returned for the relevant periods, further demonstrating the Appellant’s compliance with VAT rules.

19. The Appellant submitted that, whilst an insufficiency of funds was not generally a reasonable excuse for late payment, these circumstances were different because of the very large sums involved (£1.7million in delayed repayments of VAT to it, over £2million taking into account the sum due to its associate company).

20. The Appellant submitted that all the relevant facts and circumstances should be taken into account, including its history of full compliance excepting this one instance of late payment of VAT. HMRC’s Review Conclusion Letter referred to a previous late payment penalty for the period 05/23 and the Appellant did not present evidence disputing this.

21. The Appellant submitted that case law confirmed that it was reasonable for taxpayers to mix VAT receipts collected by them with their own operating funds, such sums effectively being an interest free loan from HMRC. In this case, the Appellant submitted, the reverse was true and the delaying of payments to it meant that HMRC had the benefit of funds properly belonging to the Appellant. In these circumstances, cashflow issues should be a reasonable excuse.

22. In support of these arguments, the Appellant cited the cases of Rowland v R&C Commrs (2006) Sp C 548, Perrin v HMRC [2018] UKUT 0156 (TCC) , Steptoe v C&E Commrs [1992] BVC 142, Customs and Excise Commissioners v Savelon Ltd [1989] STC 907 ( Savelon ) and ESC Studios Ltd v HMRC [2025] UKFTT 747 (TC) ( ESC ). Special Circumstances

23. Paragraph 13 of Schedule 26 provides that: “(1) If HMRC thinks it is right because of special circumstances, they may reduce a penalty under this Schedule. (2) In sub-paragraph (1) “special circumstances” does not include- (a) ability to pay, or (b) the fact that a potential loss of revenue from a taxpayer is balanced by a potential over-payment by a taxpayer. (3) In sub-paragraph (1) the reference to a penalty includes a reference to- (a) staying a penalty, and (b) agreeing a compromise in relation to proceedings for a penalty”.

24. HMRC stated that it had considered whether there were special circumstances as a result of which it was appropriate to reduce the penalties and concluded that a special reduction was not appropriate.

25. HMRC submitted that whilst the Tribunal had power under paragraphs 21(2) and 21(3) of Schedule 26 to substitute HMRC’s decision (under paragraph 13) with another decision that HMRC could have made, it could only do so if it found HMRC’s to be “flawed when considered in the light of the principles applicable in proceedings for judicial review”, that is: (1) That the decision maker had not taken account of all relevant factors; (2) That the decision maker had taken into account irrelevant factors; (3) That the decision was one that no reasonable decision maker could make, having regard to the available evidence.

26. HMRC submitted that its decision was not so flawed.

27. The Appellant made no submissions on this point. Facts

28. The Appellant was required to make a payment of VAT in the sum of £534,314.87 by 7 November 2024 in respect of the period 09/24.

29. The Appellant paid the tax due for the period 09/24 on 23 January 2025.

30. The Appellant’s payment of VAT for the period 09/24 was late. Specifically, it remained unpaid both 15 days and 30 days after the date it was due for payment.

31. HMRC issued a first Late Payment Penalty (LPP) in the sum of £21,372.59 under paragraph 5(1) of Schedule 26 on 11 December 2024.

32. HMRC issued a second LPP in the sum of £2,752.08 under paragraph 8(1) of Schedule 26 on 26 January 2024. Discussion

33. It is not in dispute that the VAT was late as a matter of fact and that penalties could be raised under Schedule 26.

34. HMRC demonstrated that the LPP notices had been issued and they are therefore deemed to have been served.

35. Having heard HMRC’s submissions on the presumption of service, the Appellant confirmed that it was not in a position to rebut the statutory presumption.

36. The matter for the Tribunal to consider is therefore whether the Appellant had reasonable excuse for paying its VAT late.

37. Since the Appellant is not part of any VAT Group, we can only be concerned with its individual VAT position. The fact that a company with which it is associated was due a VAT refund at the same time, which monies the Appellant intended to use towards payment of its liability, is not a reasonable excuse.

38. The Appellant is correct that there is no legal reason why it should not mix VAT receipts with its own operating funds and this is supported by case law. The authority referred to was Savelon , in which Nolan J stated that: “…the cases in which a trader with insufficient funds to pay the tax can successfully invoke the defence of reasonable excuse must be rare. That is because the scheme of collection which I have outlined involves at the outset the trader receiving (or at least being entitled to receive) from his customers the amount of tax which he must subsequently pay over to the commissioners. There is nothing in law to prevent him from mixing this money with the rest of the funds of his business and using it for normal business expenses (including the payment of output tax), and no doubt he has every incentive to do so. The tax which he collected represents, in substance, an interest-free loan from the commissioners. But by using it in his business he puts it at risk. If by doing so he loses it, and so cannot hand it over to the commissioners when the date of payment arrives, he will…be hard put to it to persuade the commissioners or the tribunal that he had a reasonable excuse for venturing and thus losing money destined for the Exchequer of which he was the temporary custodian...”

39. The risk of using VAT receipts in a business falls solely on the taxpayer if he chooses to do this (as opposed to holding them separately to pay on to HMRC). An insufficiency of funds following such use is generally foreseeable and will not in itself constitute a reasonable excuse.

40. The amounts of VAT in question are indeed large, as noted by the Appellant, but given the nature of VAT as outlined above, the sums involved only increase the risk assumed by the taxpayer choosing to use them for other purposes.

41. The Appellant cited the reviews by HMRC in relation to its VAT returns for the periods 10/24 and 11/24, which delayed the repayments due to the Appellant for those periods.

42. Given the dates and periods involved, those refunds relate to periods after the late VAT fell due and they cannot therefore be the reason for the Appellant not paying its VAT on 7 November 2024. In this respect, the case before us differs from ESC .

43. The Appellant suggested that in its case, rather than it effectively receiving interest free loans from HMRC as described by Nolan J in the extract above, HMRC had the benefit of using money properly belonging to the Appellant i.e. the benefit was to HMRC. The argument may appear neat, but HMRC does pay interest on money it owes and pays late to taxpayers.

44. The fact that, taking periods 09/24, 10/24 and 11/24 together, the Appellant was due an overall re-payment from HMRC is not relevant. The Appellant accounts for VAT monthly and the ensuing payments or refunds are made monthly.

45. The Tribunal notes that the individuals appearing on behalf of the Appellant were not in post or were not involved with communications with HMRC in November and December 2024. As a result, there was some uncertainty as to the content of such communications and HMRC were unable to provide further clarity during the hearing. The Appellant referred to correspondence in early December as a result of which it became aware of the reviews. No evidence was brought that the LPPs were discussed at this or any other time, though Ms McCormick assumed the penalties must have been covered then and/or in the meeting on 8 January 2025 when the Appellant invited HMRC to its offices in the context of the reviews.

46. It is perhaps understandable that the Appellant conflates the issues of the LPPs and the reviews. However, they are entirely separate issues. The relate to different periods. The periods under review came after the due date for the payment owed by the Appellant which gave rise to the LPPs. The delay in payment of refunds for later periods cannot have caused the inability to pay the VAT due on 7 November 2024. There is no evidence that the Appellant contacted HMRC to discuss any difficulties in making the payment before it fell due on 7 November 2024. Even if the matter had been discussed in early December or January, the payment was already late by then and the criteria for the LPPs being issued had been met.

47. In all the circumstances, we were unable to identify a reasonable excuse for the late payment of the VAT due on 7 November 2024.

48. No arguments were raised to suggest that HMRC’s decision not to make a special reduction was flawed. Decision

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

50. 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: 05 th FEBRUARY 2026