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VAT Civil Penalties

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Default Surcharge: Reviews and appeals: Greengate Furniture Ltd tax case

In the case of Greengate Furniture Ltd, the company appealed against a default surcharge, contending firstly that it had a reasonable excuse and alternatively that the imposition of the surcharge contravened the legal principle of ‘proportionality’.

The tribunal rejected the first contention, holding that there was no reasonable excuse for the defaults, but held a further three-day hearing to consider the subject of ‘proportionality’ in more detail. The tribunal reviewed the relevant case law in detail and dismissed the appeal.

The tribunal observed that ‘a system of penalties is necessary to ensure compliance and… given that some 12 to 14 per cent of the 1.7 million registered traders still in default in any one year, a system of surcharges is necessary’.

The tribunal expressed concern that there was no power to mitigate default surcharges, although FA 1993 had given both the Commissioners and the tribunal powers to mitigate penalties. The tribunal commented that ‘we find the justifications for the absence of a power to mitigate to be less convincing’. However, ‘the necessity for an automatic scheme without mitigation is not merely a matter of the judgement of the tribunal or court. The authorities make it clear that the legislature has a wide margin of appreciation when framing implementation policies in the area of taxation’. Furthermore, the surcharges did not contravene the European Convention on Human Rights.