In HMRC v Trinity Mirror PLC The Upper Tax Tribunal (UTT) has overturned the previous decision of the First Tier Tribunal (FTT) to set aside a late filing surcharge of £70,900 on the grounds of proportionality, concluding that whilst it might be considered harsh, it cannot be regarded as plainly unfair.

The facts of the case

These were not in dispute and were as follows:

The initial case was brought by the company on the grounds that whilst EU Directives empower member states to apply penalties as appropriate, that power must be exercised in accordance with the "principle of proportionality".

This means that:

  1. penalties must not go beyond what is strictly necessary for the objectives pursued and
  2. a penalty must not be so disproportionate to the gravity of the infringement that it becomes an obstacle to the underlying aims of the objective.

FTT decision

In reaching its decision to set aside the surcharge, the FTT considered a number of precedents including Enersys Holdings UK Ltd v. Revenue and Customs Commissioners in which a 5% surcharge of £131,881 was determined to be disproportionate.

FTT took a mathematical approach to compare the surcharge in Enersys with the Trinity surcharge; if £131,881 was disproportionate for a 5% charge, then anything in excess of £52,752 must be disproportionate for a 2% charge.

 Judgment of the UTT

In upholding the surcharge, the UTT considered the following:

  1. That the FTT had erred in law by attempting to set any maximum penalty as this was effectively seeking to legislate, and that the tribunal had placed too much emphasis on the Enersys decision in seeking an arithmetical comparison; each case should be considered for proportionality based upon its own facts and what is disproportionate in one circumstance may not be disproportionate in another.
  2. That the objective of the surcharge scheme is to impose a penalty for late payment and it does not penalise any further for subsequent delays in payment.  The UTT concluded that the penalty was based upon a modest percentage of the VAT unpaid by the due date and that it could not be considered to go beyond the objectives of the scheme.
  3. That the objective of the EU directive is one of 'fiscal neutrality'.  This recognises that the burden of VAT falls not upon the company itself but upon the final consumer, and that the company is merely collecting and then paying over the tax.  The system requires companies to comply with its obligations, including paying over the tax it has collected on a prompt and timely basis.  The UTT concluded that a penalty of 2% could not be considered so disproportionate to the gravity of the infringement as to constitute an obstacle to the underlying aims of the objective.

Cases referred to

HMRC v Total Technology (Engineering) Ltd [2012] UKUT 418 (TCC)

Enersys Holdings UK Ltd v. Revenue and Customs Commissioners [2010] UKFTT 20 (TC).

Trinity Mirror PLC v Revenue & Customs [2014] UKFTT 355 (TC)

HMRC v Trinity Mirror PLC [2015] UKUT 0421 (TCC)