This case concerned an incorrect imposition of liability to tax and NIC (by way of a regulation 80 determination), which it was argued led to an insufficiency of funds to meet a VAT liability (Prisma Recruitment Ltd v HMRC  UKFTT 291 (TC)).
The initial question was whether a reg. 80 determination had in fact been made. On this point, the FTT ruled as follows:
“In our view, it is sufficient if HMRC have decided how much PAYE income tax they consider to be due and unpaid and have told the employer of that decision. It is clear from the documents referred to in Mr Loftus’ submissions that HMRC had decided there was unpaid tax, they had determined that amount of that tax and had notified the Appellant of that decision.
Accordingly, we find that HMRC had made a Regulation 80 determination which provides the Appellant with an appealable decision.”
The FTT also ruled that the taxpayer had made an in-time repayment claim under TMA 1970, Sch. 1AB.
It followed that the FTT was able to address the substantive issue, and in this respect it again ruled in favour of the taxpayer. The company “was under no obligation to deduct income tax or NICs from the workers’ remuneration”.
The company then argued that its “ability to pay the VAT was contingent on the PAYE/NIC matters and that the shortfall in the VAT payments never exceeded the PAYE and NIC amounts at any time: the PAYE/NICs reclaimed was over £28,000 and the largest single VAT shortfall was £26,000”. On this point, however, the company lost its appeal:
“Prisma did not, in fact, pay the full £28,199.21 PAYE/Class 1 primary NICs as a lump sum. This amount, and the VAT outstanding was the subject of the time to pay agreement of 1 July 2014. The Appellant was paying £2,063 a month between July 2014 and July 2017. Except in one quarter, the VAT shortfall was considerably more than £2,063.
We find that the Appellant’s cash flow difficulties during the relevant quarters were no more than the normal hazards of trade. We do not accept that Prisma’s dispute with HMRC about the PAYE/NICs was the underlying cause of the insufficiency of funds. The reason for the late payment was simply insufficiency of funds and that is not capable of providing a reasonable excuse.
Accordingly we have decided that the Appellant had no reasonable excuse for the late payment of VAT.”
The appeal against the VAT default surcharges was therefore dismissed.
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