UK HMRC set back on disproportionate VAT fines

Mon 5th May 2014

The newspaper group, Trinity Mirror, has won a significant victory against the UK’s tax office with regard to a large penalty on a late UK VAT return. The case underlines the proportionality principle of the EU VAT Directive, and that companies should not be excessively punished for relatively minor infringements.

VAT return late filing fine

Trinity was appealing against a £70,900 fine imposed after it had filed its regularly quarterly UK VAT filing late by one day in 2008. The fine was a default surcharge, based on a 2% fine for the VAT due. The UK’s First Tier Tribunal overturned last week as out of proportion to the offence. It relied on the principle of proportionality contained with the EU VAT Directive, and held that it was unfair. The Tribunal highlighted that the whole system needed a rethink since it couldn’t simply reduce the fine but had to rule it out altogether.

The UK operates a reduce penalty regime for smaller companies. But otherwise the default surcharge is 2% of the late VAT for the first infringement and late return. On the second infringement it is 5%, 10% on the third and 15% onwards. Companies can petition for a cancellation in the case of a reasonable excuse.