Default surcharge after problem with direct debit

The taxpayer received a default surcharge liability notice for VAT period June 2016. To avoid future defaults it set up (or thought it had set up) a direct debit instruction (DDI) in August 2016 to ensure future VAT returns were paid on time. However the DDI process did not work so the August VAT was paid late and HMRC issued a 2% surcharge. The September payment was one day late resulting in a surcharge £217 436 (5% of the unpaid tax).

The taxpayer appealed against the August surcharge saying it believed the DDI had been set up successfully. It had received no error notification and had taken the correct and published steps required to create it.

The First-tier Tribunal accepted the taxpayer’s argument that it had no reason to consider the DDI procedure had failed because it received no error message. The taxpayer had taken...