It is fair to say that HM Revenue and Customs (HMRC) take a hard line when it comes to non-payment or late payment of taxes due. Unless the taxpayer can show a ‘reasonable excuse’ (which in practical terms means a really compelling reason) for the delay, HMRC are unlikely to use their discretion to waive penalties for late payment.

One would think that the after-effects of a typhoon would be accepted as a reasonable excuse for late payment of VAT, but when a company’s logistics and cash flow were thrown into chaos by a typhoon on the other side of the world, HMRC stood their ground over a shortfall in payment of some £145,000.

Not only had the company’s supply chain broken down, but the launch of the Apple iPhone 7 meant that air freight was block booked – further disrupting the company’s supplies.

HMRC had permitted the company to pay the VAT bill in stages and the debt had been cleared within three weeks. However, they had not agreed to waive the penalty for late payment and imposed a 10 per cent penalty. Whilst expressing sympathy for the company’s predicament, HMRC took the view that, in effect, the company would otherwise have received an interest-free loan of public funds.

In overturning the penalty, however, the First-tier Tribunal found that the company had a reasonable excuse for late payment. Despite doing all that it could to exercise reasonable foresight and due diligence, it had encountered two unexpected events that fell entirely outside its control. The acute cash flow problem was very short term and, had HMRC given the matter full consideration, they would have granted the company additional time to pay.