For most of us, submitting a client’s VAT return feels like the moment the work is done. Two First-tier Tribunal decisions released on the same day, Long Life Fencing & Decking Limited and W. Byers Limited, are a useful reminder that the return is only half of the obligation. The payment is the other half, and it is on the payment side that the Schedule 26 Finance Act 2021 penalty regime now bites, automatically and without much room for sympathy.
Both appeals concerned the very same quarter, the period ended 30 September 2025, with the same payment due date of 7 November 2025. Both turned on the single statutory question of whether the taxpayer had a reasonable excuse for paying late. One appeal failed and one succeeded. Read side by side, they map out almost the entire landscape an adviser needs to keep in view.
The regime in brief.
Schedule 26 replaced the old default surcharge from 1 January 2023. The structure is mechanical, which is precisely why it is unforgiving. No penalty arises if the VAT is paid in full before the end of the 15-day period beginning with the day after the due date. If any tax remains unpaid after that point, a first penalty becomes due unless a Time to Pay arrangement has been proposed before the 15 days expire.
Where tax is still outstanding after 30 days, the penalty is calculated as 3% of the amount unpaid at day 15 plus a further 3 per cent of the amount unpaid at day 30. The 3% rates replaced the original 2% figures with effect from 31 May 2025, so the regime is now appreciably more expensive than when it was first introduced. The 15-day window is therefore the single most valuable buffer a client has, and protecting it should be the adviser’s first instinct on any payment difficulty.
The two cases at a glance.
| Feature | Long Life Fencing & Decking Ltd | W. Byers Ltd |
| Citation | [2026] UKFTT 887 (TC) | [2026] UKFTT 886 (TC) |
| Period | Quarter ended 30 September 2025 | Quarter ended 30 September 2025 |
| VAT due | £7,008.67 | £161,618.14 |
| Penalty | £420.52 (3% at day 15 plus 3% at day 30) | £4,848.54 (first penalty, 3% at day 15) |
| Excuse advanced | Director new to VAT, believed returns might be six-monthly or annual and awaited an HMRC letter. | Reliance on an HMRC on-screen message confirming a Direct Debit would be collected automatically. |
| Nature of the excuse | Ignorance of a simple, well-known legal requirement | Reasonable but mistaken understanding induced by HMRC’s own communication |
| Outcome | Appeal dismissed; penalty upheld | Appeal allowed; penalty cancelled |
The 15-day rule and arranging Time to Pay.
The practical message from both decisions is the same: act inside the 15 days. In Long Life the VAT for the September quarter was not paid until 15 December 2025, well beyond both the 15 and 30-day points, and so the full A-plus-B calculation applied. There was no Time to Pay proposal at any stage, which removed the one route that could have prevented the penalty arising despite late payment.
If a client cannot pay in full, the adviser’s task is to propose a Time to Pay arrangement before the 15-day window closes, not after. A proposal made in time stops the first penalty from crystallising. Waiting until the client notices the problem, then paying promptly, does not help, because by then the penalty has already arisen by operation of the statute.
Direct Debits: the same-day trap.
W. Byers is an essential reading for any client who pays by Direct Debit or an accountant setting u direct debit for their client. The company submitted its return on 6 November 2025 and set up a new Direct Debit instruction on the very same day, the day before the due date. HMRC’s systems collect a Direct Debit only where the mandate has been established at least three working days before the return is submitted. Because the mandate and the return went in together, nothing was collected, and the £161K liability simply sat unpaid.
The lesson holds whoever sets up the mandate. A Direct Debit established at the last minute will not catch the imminent liability; it operates only prospectively. Where a Time to Pay arrangement has previously required a mandate to be cancelled, as had happened here, reinstating it well ahead of the next due date is what protects the client. The safe discipline is to verify, in the week the payment falls due, that collection has actually been initiated, rather than to assume it.
Why W. Byers nonetheless won?
On setting up the mandate, the company received an on-screen HMRC message stating, under the heading “What happens next”, that HMRC “will collect your payments automatically by Direct Debit”. The Tribunal held that this was not a neutral acknowledgement but a representation, in clear and mandatory terms, as to what would happen. It carried no qualification about any minimum lead time. A reasonable taxpayer was entitled to take that specific, point-of-action confirmation at face value rather than infer an undisclosed condition from HMRC’s generic published guidance. The specific message outweighed the general guidance, and that was the central plank of a successful appeal.
Ignorance of law against being misled on the facts.
The two appeals fall on opposite sides of a line that the Upper Tribunal drew in Perrin v HMRC. Both Tribunals worked through the staged Perrin approach:
- Establish the facts asserted;
- Decide which are proven;
- Ask whether those proven facts are objectively a reasonable excuse, and
- Then ask whether the failure was remedied without unreasonable delay once any excuse ceased.
Long Life: ignorance of a simple rule. The director, new to VAT, believed later returns might be six-monthly or annual and was waiting for a letter from HMRC that never came. The Tribunal accepted those facts but held they were not an objectively reasonable excuse. The rules that the standard VAT period is three months and that payment falls due one month and seven days after the period ends are, in Perrin’s words, well-known, simple and straightforward. There was no evidence the director had taken any step to check the position, by contacting HMRC, taking advice, or even a simple online search. A responsible trader exercising reasonable care would have done so. The appeal was dismissed.
W. Byers: misled on a fact. The company did not misunderstand the law. It was misled about whether its payment had been arranged, by HMRC’s own confirmation message. The Tribunal accepted that a reasonable excuse can arise where a taxpayer acts on a reasonable but mistaken understanding induced by HMRC’s communication, provided the reliance is itself reasonable. Here it was. That distinction, ignorance of an accessible rule on one hand and reasonable reliance on a specific official assurance on the other, is what separates the two outcomes.
A note on the director’s circumstances. In W. Byers the company also relied on the fact that its director is autistic and depends on clear, literal written communication. The Tribunal accepted this as part of the factual matrix but was careful to record that its conclusion did not depend on it; the conduct was reasonable even on a wholly objective standard. Advisers should note that personal circumstances can colour the picture, but the stronger case is the one that succeeds without leaning on them.
When the excuse ceases: remedy without unreasonable delay.
A reasonable excuse protects a client only for as long as it genuinely exists. Once it ceases, typically when the client becomes aware that payment has not gone through, the failure must be remedied without unreasonable delay. This is the fourth Perrin stage, and it is built expressly into paragraph 12(3) of Schedule 26.
In W. Byers the company discovered some weeks later that nothing had been collected and then made four faster payments between 25 and 27 November 2025, clearing the full liability. HMRC could point to no earlier moment when a reasonable taxpayer ought to have realised the position, and the Tribunal was satisfied there had been no unreasonable delay once the excuse ended. The practical instruction for clients is blunt: the moment you learn the payment has not been taken, pay it in full straight away and keep a record of when you found out and what you did.
Intention to comply helps, but only alongside reasonable conduct.
Good faith and a visible intention to pay carried real weight in W. Byers. The company had transferred substantial sums, into its current account specifically so the Direct Debit could be collected. The Tribunal treated this as a positive step directed towards compliance, viewing the conduct in the round as aimed at meeting the obligation rather than avoiding it.
Intention alone, however, is not the test. The Tribunal was explicit that it is not enough to have acted honestly; the question is whether what the taxpayer did was reasonable. In Long Life the director acted in good faith too and corrected matters promptly once he realised, yet that prompt corrective action was held to be irrelevant, because the excuse has to relate to the failure to pay on time, not to the speed of the eventual clean-up. Intention to comply strengthens an otherwise reasonable case; it cannot rescue an unreasonable one.
Inability to pay is not an excuse.
Schedule 26 closes off the argument most clients instinctively reach for. An insufficiency of funds is not a reasonable excuse unless it is attributable to events outside the person’s control. Separately, the special reduction for special circumstances expressly excludes ability to pay. A client who simply could not afford the VAT has, without more, neither a reasonable excuse nor a route to a special reduction. The constructive response is to engage early and propose Time to Pay inside the 15 days, which is the mechanism the regime actually provides for cash-flow difficulty.
What advisers and clients should take from this.
- Treat payment as a distinct obligation from filing. The return being submitted does not protect the client; the cleared payment, or a Time to Pay proposal made in time, is what protects them.
- Guard the 15-day window. If full payment is not possible, propose Time to Pay before day 15. A proposal made in time stops the first penalty arising.
- Never set up a Direct Debit at the last minute. The mandate must be in place at least three working days before the return is submitted, or it will not collect that liability. After any Time to Pay arrangement ends, reinstate the mandate well ahead of the next due date.
- Verify collection, do not assume it. Check in the week payment is due that the Direct Debit has actually been taken.
- Document specific HMRC communications. A clear, point-of-action message can outweigh generic guidance and become the central plank of an appeal, so capture screenshots and confirmations at the time.
- Once an excuse ceases, remedy the failure immediately and record the timeline. Prompt payment after discovery preserves the excuse; delay forfeits it.
- Let intention support a reasonable case, not replace one. Evidence of funds set aside and steps taken towards compliance helps, but only where the conduct itself was objectively reasonable.
- Do not rely on inability to pay. It is excluded by statute, both as a reasonable excuse and as a special circumstance.
You can find the relevant case laws in the below links.
Long Life Fencing & Decking Limited v HMRC: https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/887W.Byers Limited v HMRC: https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/886
These decisions are First-tier Tribunal cases and are not binding precedent, though they are a helpful guide to how the Schedule 26 reasonable excuse provisions are being applied in practice. This article is general commentary and not advice on any particular matter. The parties may or may not appeal the decision of the courts to higher courts.