Value Added Tax Act 1994, section 59

The default surcharge

Part IV Administration, collection and enforcement

(1)[F507 Subject to subsction (1A) belowF507] if, by the last day on which a taxable person is required in accordance with regulations under this Act to furnish a return for a prescribed accounting period—

(a)the Commissioners have not received that return, or

(b)the Commissioners have received that return but have not received the amount of VAT shown on the return as payable by him in respect of that period,

then that person shall be regarded for the purposes of this section as being in default in respect of that period.

[F508 (1A)A person shall not be regarded for the purposes of this section as being in default in respect of any prescribed accounting period if that period is one in respect of which he is required by virtue of any order under section 28 to make any payment on account of VAT.F508]

(2)Subject to subsections (9) and (10) below, subsection (4) below applies in any case where—

(a)a taxable person is in default in respect of a prescribed accounting period; and

(b) the Commissioners serve notice on the taxable person (a “surcharge liability notice”) specifying as a surcharge period for the purposes of this section a period ending on the first anniversary of the last day of the period referred to in paragraph (a) above and beginning, subject to subsection (3) below, on the date of the notice.

(3)If a surcharge liability notice is served by reason of a default in respect of a prescribed accounting period and that period ends at or before the expiry of an existing surcharge period already notified to the taxable person concerned, the surcharge period specified in that notice shall be expressed as a continuation of the existing surcharge period and, accordingly, for the purposes of this section, that existing period and its extension shall be regarded as a single surcharge period.

(4)Subject to subsections (7) to (10) below, if a taxable person on whom a surcharge liability notice has been served—

(a)is in default in respect of a prescribed accounting period ending within the surcharge period specified in (or extended by) that notice, and

(b)has outstanding VAT for that prescribed accounting period,

he shall be liable to a surcharge equal to whichever is the greater of the following, namely, the specified percentage of his outstanding VAT for that prescribed accounting period and £30.

(5)Subject to subsections (7) to (10) below, the specified percentage referred to in subsection (4) above shall be determined in relation to a prescribed accounting period by reference to the number of such periods in respect of which the taxable person is in default during the surcharge period and for which he has outstanding VAT, so that—

(a)in relation to the first such prescribed accounting period, the specified percentage is 2 per cent;

(b)in relation to the second such period, the specified percentage is 5 per cent;

(c)in relation to the third such period, the specified percentage is 10 per cent; and

(d)in relation to each such period after the third, the specified percentage is 15 per cent.

(6)For the purposes of subsections (4) and (5) above a person has outstanding VAT for a prescribed accounting period if some or all of the VAT for which he is liable in respect of that period has not been paid by the last day on which he is required (as mentioned in subsection (1) above) to make a return for that period; and the reference in subsection (4) above to a person’s outstanding VAT for a prescribed accounting period is to so much of the VAT for which he is so liable as has not been paid by that day.

(7)If a person who, apart from this subsection, would be liable to a surcharge under subsection (4) above satisfies the Commissioners or, on appeal, a tribunal that, in the case of a default which is material to the surcharge—

(a)the return or, as the case may be, the VAT shown on the return was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limit, or

(b)there is a reasonable excuse for the return or VAT not having been so despatched,

he shall not be liable to the surcharge and for the purposes of the preceding provisions of this section he shall be treated as not having been in default in respect of the prescribed accounting period in question (and, accordingly, any surcharge liability notice the service of which depended upon that default shall be deemed not to have been served).

(8)For the purposes of subsection (7) above, a default is material to a surcharge if—

(a)it is the default which, by virtue of subsection (4) above, gives rise to the surcharge; or

(b)it is a default which was taken into account in the service of the surcharge liability notice upon which the surcharge depends and the person concerned has not previously been liable to a surcharge in respect of a prescribed accounting period ending within the surcharge period specified in or extended by that notice.

(9)In any case where—

(a)the conduct by virtue of which a person is in default in respect of a prescribed accounting period is also conduct falling within section 69(1), and

(b)by reason of that conduct, the person concerned is assessed to a penalty under that section,

the default shall be left out of account for the purposes of subsections (2) to (5) above.

(10)If the Commissioners, after consultation with the Treasury, so direct, a default in respect of a prescribed accounting period specified in the direction shall be left out of account for the purposes of subsections (2) to (5) above.

[F509 (11)For the purposes of this section references to a thing’s being done by any day include references to its being done on that day.F509,F506]]

Definitions used in section 59 10

taxable person

“taxable person” means a person who is a taxable person under section 3;

Defined in s.96(1) · see it in the full Act
regulations

“regulations” means regulations made by the Commissioners under this Act;

Defined in s.96(1) · see it in the full Act
prescribed accounting periods

account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations and regulations may make different provision for different circumstances.

Defined in s.25(1) · see it in the full Act
prescribed accounting period

“prescribed accounting period” has the meaning given by section 25(1);

Defined in s.96(1) · see it in the full Act
the Commissioners

“the Commissioners” means the Commissioners of Customs and Excise;

Defined in s.96(1) · see it in the full Act
VAT

“VAT” means value added tax charged in accordance with this Act;

Defined in s.96(1) · see it in the full Act

(2) Subsection (1) shall have effect in a case falling within paragraph (b) of that subsection where the assessment was made on or before 10th March 1992 with the substitution of “20 per cent.” for “15 per cent.” .

Defined in Sch.13 para.15(2) · see it in the full Act
subsection (1) above

(a) the reference in subsection (2) to “subsection (1) above” were to “subsection (1) and paragraph 24(1) of Schedule 9ZA”;

Defined in Sch.9ZA para.24(2) · see it in the full Act

(b) the reference in subsection (2A) to “subsection (1) above” were to “subsection (1) or paragraph 24(1) of Schedule 9ZA”.

Defined in Sch.9ZA para.24(2) · see it in the full Act
tribunal

In this Act “tribunal” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal.

Defined in s.82 · see it in the full Act

“tribunal” has the meaning given by section 82;

Defined in s.96(1) · see it in the full Act
the preceding provisions of this section

(6) Section 7 has effect as if the references in subsections (5A) to (7) to “the preceding provisions of this section” included sub-paragraphs (1) and (2) of this paragraph.

Defined in Sch.9ZB para.29(6) · see it in the full Act

Cases considering section 59 6

MJL Contracts Limited v The Commissioners for HMRC

[2023] UKUT 254 (TCC) · 17 October 2023Interprets

Defines a default to include either late filing or late payment of VAT shown on a return. The Tribunal applied that definition to hold that late payment after timely filing engaged the surcharge regime (see paras [17]; [20]; [26]). The Tribunal applied the requirement that HMRC serve a surcharge liability notice after a default. MJL had been served with the required notice (see paras [18]; [23]). The Tribunal explained that a further surcharge liability notice may extend an existing surcharge period after a further default. The 08/20 period fell within the relevant extended surcharge period (see paras [18]; [23]). The Tribunal construed the operative surcharge provision as applying where a person has a surcharge liability notice, defaults in a period within the surcharge period, and has outstanding VAT. It rejected the contention that a prior assessment under section 73(1) was required (see paras [19]; [23]; [26]). The Tribunal applied the prescribed percentage calculation. As the relevant default was the first such period with outstanding VAT in the surcharge period, the surcharge rate was 2% (see paras [22]; [24]). Defines outstanding VAT as VAT not paid by the return due date. The Tribunal applied it to the unpaid £36,038.26 for the 08/20 period (see paras [21]; [23]).

Mohammad Ameen Mirza v The Commissioners for HMRC

[2022] UKUT 291 (TCC) · 9 November 2022

Cited only. The Tribunal applied the reasonable-excuse defence. Incorrect professional advice may be capable of constituting a reasonable excuse, but the taxpayer must prove genuine, causative and objectively reasonable reliance. The available evidence did not establish those matters. (see paras [49]-[51])

CMS Peripherals Ltd v Revenue and Customs

[2007] EWHC 1128 (Ch) · 14 May 2007

Applies the statutory definition of default where the required return or the VAT shown on it as payable has not been received by the last date for furnishing the return. The court treated this framework as identifying the amount for which a reasonable excuse had to be shown. (see paras [7], [15]) Confirms that a person is not treated as being in default where there is a reasonable excuse for the return or VAT not having been despatched. The court applied that exception to the clerical error and prompt manuscript correction in this case. (see paras [8], [16]-[17])

What each judgment says about section 59 is in the case-law panel in the full Act.

Amendments and notes

6 notes from legislation.gov.uk

Amendments

  1. F506Ss. 59-59B omitted (1.1.2023 for specified purposes, 6.4.2024 for specified purposes, 1.4.2026 for specified purposes) by virtue of Finance Act 2021 (c. 26), s. 118(2), Sch. 27 para. 17; S.I. 2022/1278, reg. 2(3)(4)(a); S.I. 2024/440, reg. 2; S.I. 2026/370, reg. 3 text omitted for certain specified purposes only, see the commentary.
  2. F507Words in s. 59(1) inserted (29.4.1996 with effect as mentioned in s. 35(8) of the amending Act) by 1996 c. 8, s. 35(3)
  3. F508S. 59(1A) inserted (29.4.1996 with effect as mentioned in s. 35(8) of the amending Act) by 1996 c. 8, s. 35(3)
  4. F509S. 59(11) inserted (29.4.1996 with effect as mentioned in s. 35(8) of the amending Act) by 1996 c. 8, s. 35(4)

Modifications

  1. C47S. 59 modified by S.I. 1995/2518, reg. 40(5) (as inserted (22.7.2004) by The Value Added Tax (Amendment) (No. 3) Regulations 2004 (S.I. 2004/1675), regs. 1(1), 5)
  2. C48S. 59 restricted (9.3.2021) by Finance Act 2021 (c. 26), s. 99(2), Sch. 19 para. 3