Proportionate penalty

The taxpayer company ran an employment agency. It had been trading since 1973 and had an excellent tax compliance record.

Following the introduction of a new accounting system small adjustments to the total VAT due from the company had been paid after the due dates in respect of the returns for the periods ending May and November 2008.

They were recorded as late payments by HMRC but the department did not collect the VAT default surcharge because it was less than £400.

The company was one day late paying its VAT for the June 2009 quarter; the Revenue imposed a default surcharge of approximately £4 000.

The taxpayer appealed to the First-tier Tribunal which decided the penalty was disproportionate even though the business did not have reasonable excuse for late payment. HMRC appealed.

The Upper Tribunal said a measure should be suitable for the purpose for...