Trinity Mirror took its case to the First Tier Tribunal (FTT) in 2014 after being asked by HMRC to pay over £70,000 for failing to pay a £3.5m VAT bill one day after its specified date.
In favour of the publisher, the FTT argued that the surcharge, which had been levied at a rate of two per cent, was unfair. The tribunal took the view that the surcharge “went beyond what was strictly necessary for the objectives pursued and was excessive in view of the gravity of the infringement such that it imposed a disproportionate burden on Trinity Mirror”.
Following its decision, HMRC appealed to the Upper Tier Tribunal (UT), arguing that the FTT had made a number of errors of law and its decision was therefore flawed. Therefore, HMRC maintained that the UT should re-make the decision.
The UT found that: “Although payment was delayed by only one day, we accept the scheme of the default surcharge regime is to impose a penalty for failing to pay VAT on time, and not to penalise further for any subsequent delay in payment. That, as we have described, is entirely consistent with the fiscal neutrality aim of the directive. It would not be possible, therefore, in our view, for the fact that the payment was only one day late to render an otherwise proportionate penalty disproportionate.”
The tribunal also stated: “We consider that the use of the amount unpaid as the objective factor by which the amount of the surcharge varies is not a flaw in the system; to the contrary, the achievement of the aim of fiscal neutrality depends on the timely payment of the amount due, and that criterion is therefore an appropriate, if not the most appropriate, factor.”
This, according to accountants at James Cowper Kreston, serves as a reminder of HMRC’s increasing stance on tax collections and the need for employers to keep on top of their VAT payment schedule.
Meera Rajah, VAT senior manager at James Cowper Kreston, said: “This decision contrasts with other cases where a default surcharge was considered disproportionate and so this remains an area of risk and uncertainty. It is really important that businesses recognise and understand the potential impact of either late submission or late payment.
“It is crucial to remember that, no matter what the size of the company, if your VAT is overdue then it will alert HMRC that your company is potentially insolvent. To avoid such a mishap, it is imperative that you understand the solutions available and keep on top of your VAT returns.”
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