Spirit Motor Company Limited v The Commissioners for HMRC

An appeal from the First-tier Tribunal lies only on a point of law. Permission should be granted where the proposed grounds disclose a realistic prospect of establishing a material error of law, or another compelling reason.

In assessing a reasonable excuse under Perrin v HMRC, the tribunal must distinguish between identifying and proving the facts relied upon and deciding whether those facts were objectively reasonable. A reasonable excuse for a late return and a reasonable excuse for late payment are separate questions. A tribunal must make findings on the facts relied upon and give adequate reasons for rejecting a material explanation.

Spirit Motor Company Limited appealed to the First-tier Tribunal against VAT default surcharges imposed under section 59 of the Value Added Tax Act 1994 for periods 08/21 and 11/21. The FTT dismissed the appeal, finding no reasonable excuse for the late return and payment in period 08/21 or the late payment in period 11/21.

The FTT refused permission to appeal. The Upper Tribunal admitted the renewed application despite its lateness, then reconsidered permission at an oral hearing. The central questions were whether the FTT had arguably erred in applying the reasonable-excuse test, assessing the evidence, and distinguishing the late return from the late payment.

1. Permission to appeal. An appeal to the Upper Tribunal lies only on a point of law under section 11 of the Tribunals, Courts and Enforcement Act 2007. Permission requires a realistic prospect of success or another compelling reason. The Upper Tribunal will not redecide facts or evaluative conclusions unless the FTT’s decision was unreasonable, irrational or perverse, and any error must be material.
2. Period 11/21. The proposed challenge to the late-payment surcharge was unarguable. The FTT had properly recorded and assessed the explanation that the direct debit was believed to remain operative. It applied the three-stage approach in Perrin v HMRC, considered the relevant evidence, and gave rational and sufficient reasons. Permission was refused on that ground.
3. Fresh evidence. The Upper Tribunal admitted the applicant’s additional oral evidence concerning period 08/21. Although the evidence had been available at the FTT hearing, it might carry weight, and admission caused no real prejudice to HMRC. The approach in Ladd v Marshall, as applied to the Upper Tribunal in Donald Graham Ketley v Revenue and Customs, was considered alongside Rules 2 and 15 of the Tribunal Procedure (Upper Tribunal) Rules 2008.
4. Period 08/21. Permission was granted in relation to both the late return and late payment. It was arguable that the FTT had treated the possibility that the applicant could not file a full and accurate return by the deadline as irrelevant to reasonable excuse. It was also arguable that the FTT had relied on an unsupported assumption that preparation had been left until the last day, thereby conflating the factual stages of the Perrin analysis with the objective-reasonableness stage.
5. It was further arguable that the FTT had failed to address adequately the belief that the direct debit covered later VAT liabilities, had treated the late return as necessarily explaining the late payment, and had failed to consider the two excuses independently. Permission was therefore granted for period 08/21 and refused for period 11/21.

• Upper Tribunal (Tax and Chancery Chamber): permission to appeal granted in relation to the late return and late payment for VAT period 08/21, and refused in relation to the late payment for VAT period 11/21.
• First-tier Tribunal (Tax Chamber): appeal against VAT default surcharges dismissed on 30 June 2023.