In HMRC v Trinity Mirror Plc2 the Upper Tribunal (UT) allowed HMRC’s appeal and concluded that a VAT default surcharge imposed for a payment made one day late was proportionate.


Trinity Mirror Plc (Trinity) had been directed by HMRC (under section 28(2A), Value Added Tax Act 1994) to make payments on account of VAT. It was required to make two monthly payments on account and a third balancing payment on a specified date (which had been notified to Trinity in advance) approximately one month after the end of the VAT period.

Trinity failed to make the balancing payment for the 06/07 VAT period by the due date (the first default). It paid in full one day late. As a result of this late payment, it was served with a surcharge liability notice and was notified of the surcharge period that had commenced. It was advised that if it defaulted again in this period it might be liable to a surcharge.

Trinity failed to make the balancing payment for its 12/07 VAT period by the due date (the second default). Again, it paid in full one day late. HMRC raised a surcharge for the second default at the rate of 2% on the amount of the late balancing payment. This amounted to a penalty of £95,900, but this was later reduced to £70,906.44, following a declaration of overpayment.

Trinity appealed the surcharge on the grounds that it was contrary to the EU principle of proportionality. The First-tier Tribunal (FTT) agreed with Trinity and held that the surcharge went beyond what was strictly necessary and was excessive in view of the gravity of the infringement. Accordingly, the surcharge was to be discharged.

HMRC appealed to the UT.

The UT’s decision

The UT agreed with the FTT that the surcharge imposed on the taxpayer under the surcharge regime must be proportionate. However, it concluded that the FTT’s approach to determining whether the surcharge was proportionate was wrong in law.

The UT noted that the FTT had undertaken a comparative exercise to determine whether the surcharge was appropriate, involving a calculation based on the number of defaults and the amount of the surcharge imposed in previous cases. They held that a tribunal in a different case should not extrapolate from a previous decision, a conclusion based on an arithmetical calculation. To do so failed to have regard to the individual circumstances of the trader (Trinity), the gravity of the default, and was contrary to authority. Accordingly, it concluded that the FTT had made an error of law.

Having determined that the FTT was wrong and that its decision should be set aside, the UT considered whether the surcharge was proportionate. It agreed with the tribunal’s comments in Total Technology3 that the default surcharge regime, viewed as a whole, is a rational scheme and accepted that the absence of any financial limit on the level of surcharge may result in an individual case in a penalty that might be considered disproportionate, but concluded that that would only occur in a wholly exceptional case.

With these observations in mind, the UT analysed the particular facts of the present case. Although payment was delayed by only one day, the purpose of the default surcharge regime is to impose a penalty for failing to pay VAT on time. In its view, the fact that payment was only one day late did not render an otherwise proportionate penalty disproportionate.

The UT concluded that there were no exceptional circumstances in Trinity’s case which could render the surcharge disproportionate. The penalty was based on a modest percentage of the amount of VAT unpaid. Trinity had been notified following the first default that further default was within the surcharge period. In addition, the penalty of 2% was arrived at by the application of a rational scheme; it might be considered harsh, but in the UT’s view it could not be regarded as unfair.

HMRC’s appeal was allowed and the surcharge was upheld.


This decision will make it increasingly difficult for taxpayers to successfully appeal against surcharges on the basis that they are disproportionate, or result from only a minor infringement. It is only in “wholly exceptional” circumstances that a surcharge will be considered disproportionate.

Unfortunately, the UT declined to provide further guidance on what characteristic would identify a case as wholly exceptional. In its view, such cases by reason of their exceptional nature, are likely to defy such characterisation.

A copy of the UT’s decision is available to read here.