In a stinging defeat for the tax authorities, a major national publisher of newspapers and magazines, which was hit with a £70,000 surcharge after paying its VAT one day late, has convinced a tax tribunal that the penalty was disproportionate and unfair.
The brief delay in making the payment of almost £4.8 million – and a similar delay, also of one day, in the previous quarter – were the first events of default in more than 20 years since the company’s first registration for VAT. HM Revenue and Customs (HMRC) nevertheless imposed a 2 per cent penalty of £95,900, although it later agreed to reduce that sum to £70,909.
In upholding the company’s appeal, the First-tier Tribunal (FTT) ruled that the size of the penalty imposed on an otherwise compliant trader for a one-day default was ‘plainly unfair’ and breached the principle of proportionality enshrined in European law. The surcharge went beyond what was strictly necessary, was excessive in view of the minor nature of the infringement and imposed a disproportionate burden on the company.
In the absence of any statutory provision enabling the FTT to mitigate or otherwise reduce the surcharge, the penalty was overturned in its entirety. The company had already paid the surcharge; however, the FTT’s ruling entitled it to its money back.