Unfair VAT “Late Payment Surcharge” Dismissed

In a case heard earlier this year (TC 3490), the independent Tax Tribunal quashed an HMRC VAT Late Payment Surcharge made on Trinity Mirror plc of £70,000: reducing it to nil, on the basis that it was “plainly unfair”.

The company had an excellent compliance record since registering for VAT in 1986.  However, in 2007 it was twice late in paying its VAT over.  HMRC issued a Late Payment Default Surcharge of £70,000 in respect of the 2nd late payment.  The taxpayer appealed on the basis that the penalty amount was “plainly unfair”.  The First Tier Tribunal decided that the penalty was “disproportionate”: using European Human Rights Court jurisprudence.  As this particular penalty legislation did not have any terms which allowed for the penalty to be reduced, the Tax Tribunal judges could either uphold the penalty or quash it entirely.  In this case, as the penalty was not proportionate to the offence the Tribunal decided not to uphold it.  Therefore, they had no alternative but to reduce it to nil.

What does this mean for me?
This case illustrates how aggressive HMRC can be in charging penalties.  Most of the tax geared penalty legislation has provision for the penalties to be reduced: known as abatement or mitigation.  However, HMRC had clearly decided to maximise the amount they collected by not incorporating any mitigation clauses in this legislation.  On this particular occasion the taxmen’s rapacity got the better of them, and it backfired.  Whatever it says, the legislation still has to comply with the Human Rights Act, which effectively provides that any penalties have to be proportionate to the offence.  Of course HMRC could have chosen not to charge a penalty on this occasion.  But instead the tax inspectors took an inappropriately aggressive stance, and tried to charge the maximum amount possible.  This case once again illustrates how useful the Tax Tribunal can be in considering contentious matters.  If you have a point where you can’t agree with HMRC, then the independent Tribunal may well be the forum to gain satisfaction.

Do I need specialist help with my tax appeal?
The taxman uses specialist ‘Appeals’ teams to lead its cases at Tribunal.  Lynam Tax Dispute Experts have decades of experience in handling contentious tax appeals, and can assist taxpayers and their accountants with the process; in order to achieve the optimum results.

*If you need help with a difficult tax dispute or a contentious tax appeal call now for a confidential and no obligation discussion:

Paul Lynam:  0845 643 9997
Andrew Nutbrown:  07718 778710