MJL Contracts Limited v The Commissioners for HMRC

A default surcharge under section 59 of the Value Added Tax Act 1994 may arise where a taxable person submits a VAT return on time but does not pay all VAT shown as payable by the due date. Section 59(4) is not confined to cases involving a failure both to submit a return and to pay an assessment made under section 73(1).

An assessment under section 76(1) fixes the amount payable. It does not require an HMRC officer to make an individual mental decision about the particular taxpayer. HMRC may determine assessment arrangements on a generic basis and automate the calculation and issue of a surcharge assessment.

MJL Contracts Limited appealed against the First-tier Tribunal’s decision of 5 September 2022 dismissing its challenge to a VAT default surcharge of £720.76.

MJL had filed its VAT returns for the relevant periods by their due dates, but had not paid all VAT shown on them by those dates. HMRC issued computer-generated surcharge liability notices. The disputed surcharge was 2% of outstanding VAT for the 08/20 period.

The appeal raised two issues: whether section 59 of the Value Added Tax Act 1994 applied where a return had been filed but payment was late; and whether an assessment under section 76(1) required an HMRC officer individually to apply their mind to the amount assessed.

1. Appeal dismissed. The statutory conditions for a default surcharge were met. MJL had received a surcharge liability notice, was in default during the resulting surcharge period, and had outstanding VAT on the due date.

2. Section 59(1) of the Value Added Tax Act 1994 defines default disjunctively. A person is in default where HMRC have not received the return by the due date or where HMRC have received it but not the VAT shown as payable. Section 59(4) therefore applied notwithstanding that MJL had submitted its return on time.

3. Section 73(1), which permits an assessment where no return is made or a return is incomplete or incorrect, does not inform the construction of section 59. Section 84(3) concerns payment or deposit requirements for specified appeals and was likewise irrelevant. The relied-on provisions of Schedule 55 to the Finance Act 2007 had not been brought into force.

4. An assessment under section 76(1) fixes the sum payable. Applying the explanation in Whitney v Inland Revenue Commissioners, assessment particularises an already established liability. The Tribunal accepted the reasoning in Donaldson v HMRC: Parliament did not intend HMRC to decide individually, taxpayer by taxpayer, whether and how to assess. It may make such decisions generically and automate the process.

5. Section 103 of the Finance Act 2020 was not directly relevant. The Tribunal dismissed both grounds of appeal.

• Upper Tribunal (Tax and Chancery Chamber): dismissed MJL’s appeal.
• First-tier Tribunal (Tax Chamber): on 5 September 2022 dismissed MJL’s appeal against the default surcharge.