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.

1. 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
karen.robb@uk.gt.com
The Regions
Stuart Brodie
stuart.brodie@uk.gt.com
The Midlands
Mike Sheppard
mike.sheppard@uk.gt.com
© 2014 Grant Thornton UK LLP All rights reserved
‘Grant Thornton’ means Grant Thornton UK LLP, a limited liability partnership
Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide
partnership. Services are delivered by the member firms. 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.
www.grant-thornton.co.uk
Indirect Tax Update 17/2014