VAT and PAYE mismatch

The taxpayer company’s cash problems began in 2007 when a customer went bust owing the firm around £300 000

The taxpayer told HMRC it would carry on paying current PAYE but that which was outstanding would need to be paid over time. The department later agreed that VAT repayments due would be offset against PAYE debts.

The company claimed it had asked the Revenue to continue the accord and assumed it would be in place for the rest of the tax year. HMRC denied that such an arrangement had been made and imposed penalties for late payment of PAYE.

The First-tier Tribunal concluded that the taxpayer had incurred considerable debt as a result of the customer failing to pay its bills.

The company had acted competently and reasonably in the situation. Its genuine belief that the agreement with taxman was in place was a reasonable excuse for late...