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Highlights this week include a First-tier Tribunal decision on the issue of whether a £71,000 default surcharge imposed by HMRC was disproportionate. Following an earlier consultation, HMRC also makes an announcement that a proposal to extend VAT exemption to supplies of higher education by 'for-profit' organisations is to be shelved.
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Indirect Tax Update for week ending 25 April 2014
Highlights this week include a First-tier Tribunal decision on the issue of whether a £71,000 default surcharge imposed by HMRC was disproportionate. Following an earlier consultation, HMRC also makes an announcement that a proposal to extend VAT exemption to supplies of higher education by 'for-profit' organisations is to be shelved.
The default surcharge system was introduced in the 1980's as an incentive to businesses to submit VAT returns and to pay their VAT liabilities in a timely manner. In Trinity Mirror PLC v HMRC, the First-tier Tribunal had to decide whether the imposition by HMRC of a surcharge of almost £71,000 by reason of a one day delay in paying the balancing payment on account was proportionate. Trinity Mirror PLC was required to make payments on account to HMRC. It paid two monthly payments on account, submitted its VAT return by the due date but made the requisite balancing payment one day late. This led to the imposition of a 2% surcharge.
Trinity Mirror PLC argued that, in the circumstances, the imposition of such a large 'penalty' offended the EU general principle of proportionality which requires that a surcharge must not go beyond what is strictly necessary to obtain the objective being pursued by the State (the continuing compliance of taxpayers). The Tribunal agreed – the Surcharge was disproportionate and went beyond the objective being pursued. The surcharge was excessive in view of the gravity of the infringement.
Comment – It seems fairly obvious that the imposition of such a huge surcharge is disproportionate. One would hope that HMRC will accept the decision and give due consideration to the gravity of the infringement before issuing similar surcharges in the future. Businesses that have incurred similar disproportionate surcharges should consider asking HMRC to reconsider in light of this decision.
HMRC has also announced (R&C Brief 18/2014) that it is to shelve its proposal to extend the exemption for supplies of higher education beyond the not-for-profit sector. Having consulted with interested parties, HMRC has announced that No solution was found that was acceptable to the majority of the for-profit education sector, and which also met Government objectives. The Government has therefore decided not to make any changes at the present time. The Brief goes on to say that the Government recognises that this news will be disappointing to some providers in the sector although others will be pleased to maintain the status quo.
Comment – The difficulty with this proposal was the issue of the recovery of input tax which 'for-profit' providers would have to bear or pass on to its customers in higher charges. Not surprising really that there was little appetite in the market place for this initiative.
For further information in relation to any of the issues highlighted in this Indirect Tax Update please contact:
London/South East Karen Robb [email protected]
The Regions Stuart Brodie [email protected]
The Midlands Mike Sheppard [email protected]
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Indirect Tax Update 17/2014
