Good news for taxpayers who submit returns or payments slightly late.
There is an HMRC default surcharge regime whereby a taxpayer is penalised when he fails to lodge a VAT return or payment by the due date (usually one month and one week after the end of the VAT period). There was no dispute over the fact that the return and payment was indeed a day late.
Trinity Mirror plc appealed against a default surcharge of £70,909 at the 2% rate. Broadly, the company was late twice within the same 12 month period. However, the return was just one day late and the company contended that such a surcharge was disproportionate having regard to domestic and EC legislation. Applying the Upper Tribunal’s decision in the case of Total Technology (Engineering) Ltd, the Tribunal held that proportionality had to be assessed at the level of the default surcharge regime as a whole and at the individual level by asking whether the penalty imposed on a particular taxpayer based on the particular facts of its case was proportionate. The Tribunal held that the surcharge in Trinity Mirror plc’s case was unfair as the company had been previously compliant and the default was only one day. The chairman went on to comment that this penalty was harsh and excessive in light of the low gravity of the infringement.
Because there are no provisions for the Tribunal to mitigate such a surcharge, it had no option but to completely set aside the penalty.
This may well provide a taxpayer with an additional weapon in their armoury when dealing with HMRC’s surcharges and provides additional clarity on proportionality in relation to the levying of default surcharges. There already exists a concept of “reasonable excuse” which goes toward mitigation of surcharges and there is significant case law to illustrate what constitutes a reasonable excuse. If you have received what you consider to be an unfair or harsh penalty, please contact us as experience insists that in the majority of cases we have dealt with we have been able to either remove or reduce HMRC’s penalties.