Kaizen Search Limited v Commissioners for Her Majesty's Revenue and Customs
Decision date: 14 March 2011
Neutral citation: [2011] UKFTT 168 (TC)
Overall AI summary confidence: high
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: high
Kaizen Search Ltd appealed a 10% default surcharge (£6,901.85) for late VAT for the period 06/10 after four defaults. The Tribunal found no "reasonable excuse" for the defaults, concluding the immediate cause was foreseeable cashflow problems arising from agreed extended customer payment terms and other known factors, and held the surcharge was not disproportionate. The appeal was dismissed.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: high
The Tribunal treated mere insufficiency of funds as not amounting to a reasonable excuse under s71 unless caused by a sudden, unexpected event; foreseeable cashflow consequences of commercial decisions (such as agreeing extended payment terms) will defeat a reasonable-excuse defence to late tax payment. In assessing proportionality of the statutory surcharge, tribunals may take into account factors outside the statutory formula — including the taxpayer’s degree of fault, the duration of lateness, and the surcharge relative to the taxpayer’s means/turnover — but on the facts the 10% fourth-default surcharge was not plainly unfair.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The judgment indicated that the default surcharge regime is intended as a deterrent rather than compensation for use of money, and that while the regime can produce disproportionate results in exceptional cases, it is not inherently disproportionate. Tribunals should consider individual factors (gravity, period of lateness, and relative wealth) when deciding whether a penalty is plainly unfair.