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GRT100456
Summary The principle of proportionality is
an unwritten concept of European
law. In simple terms and in a VAT
context, the principle is intended to
ensure that, when dealing with
taxpayers, Member State's actions
go no further than what is necessary
to achieve the objective being
pursued.
The objective of the Default
Surcharge regime in the UK is to
ensure that taxpayers not only
submit their VAT returns on time
but also pay any VAT due on time.
The First-tier Tribunal found that
the surcharge in this case was
disproportionate. However, the
Upper Tribunal has allowed
HMRC's appeal. In the
circumstances, the First-tier's
decision was wrong in law.
12 August 2015
Upper Tribunal
Trinity Mirror Plc is a well known publisher of national and regional newspapers. As a 'large' taxpayer, it is required to make payments of its quarterly VAT liability on account. It failed to make payment of its balancing instalment for a particular quarter by the due date but paid the full amount due the next day. The amount of VAT payable was £3.5 million and the surcharge rate imposed was 2% making the surcharge in excess of £70,000.
Trinity Mirror appealed to the First-tier Tribunal arguing that a penalty of £70,000 for being a day late with its balancing payment was wholly disproportionate. The First-tier Tribunal agreed and allowed the appeal. When compared to other cases where the courts had found a default surcharge to be disproportionate, it was clear to the First-tier Tribunal that the surcharge in this case was also disproportionate and allowed the taxpayer's appeal. HMRC appealed.
The Upper Tribunal has overturned the First-tier's decision and has allowed HMRC's appeal. In its recent judgment, the Upper Tribunal considers that the First-tier erred in law. By comparing the level of the surcharge in Trinity Mirror's case to the level of surcharges in other cases, it made the wrong comparison. It should have focused on the amount of VAT that had been paid late (ie £3.5 million) and, if it had done so, it would have seen that a penalty of 2% (a 'modest' percentage of the tax paid late) was not disproportionate and did not go beyond the objective of ensuring compliance and the timely payment of tax due.
In the circumstances, there was no reasonable excuse for the delay in paying the balancing payment and the imposition of the 2% surcharge was not disproportionate. HMRC's appeal was allowed.
Comment – the imposition of a £70,000 surcharge for being a day late seems somewhat harsh. The Upper Tribunal concluded by saying that a surcharge will be disproportionate only in exceptional cases but it failed to spell out what those circumstances might be. It is not yet known whether Trinity Mirror will seek leave to appeal this matter to the Court of Appeal..
Trinity Mirror PLC
Case Alert
Contact Stuart Brodie Scotland [email protected] (0)14 1223 0683
Karen Robb London & South East [email protected] (0)20 772 82556
Andrea Sofield London & South East [email protected] (0)20 7728 3311
