The law had always seemed to be on the side of HMRC when it came to allocating VAT payments. If the company was in arrears for VAT, any payment made that could have cleared the most recent VAT period would have been allocated to the arrears and further Default Surcharge Penalties raised for non-payment of ongoing VAT liabilities. CTM challenged this in 2017 in the High Court and, in the case of QN Hotels Limited, Mr Justice Nugee stated that, as long as the taxpayer states which period a payment is for, it is for that company or individual to decide whether to repay the arrears or pay the latest VAT liability. In QN Hotels case alone, this reduced the Default Surcharge penalties by over £100,000. The full judgment is here: http://www.bailii.org/uk/cases/UKUT/TCC/2017/88.pdf