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.

1. © 2015 Grant Thornton UK LLP. All rights reserved.
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms
provide assurance, tax and advisory services to their clients and/or refers to one or
more member firms, as the context requires.
Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL).
GTIL and the member firms are not a worldwide partnership. GTIL and each member
firm is a separate legal entity. Services are delivered by the member firms. GTIL does
not provide services to clients. GTIL and its member firms are not agents of, and do not
obligate, one another and are not liable for one another’s acts or omissions.
This publication has been prepared only as a guide. No responsibility can be accepted
by us for loss occasioned to any person acting or refraining from acting as a result of
any material in this publication.
grant-thornton.co.uk
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 stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556
Andrea Sofield London & South East andrea.sofield@uk.gt.com (0)20 7728 3311