Harsh VAT default surcharge decision

KEY POINTS

• The default surcharge rules can produce harsh results.
• The decision in Total Technology (Engineering) Ltd imposes a binding precedent on First-tier Tribunal judges.
• The recent case of Global Switch Ltd establishes a new standard of unfairness.
• A £1 500 VAT error resulted in a surcharge of almost £300 000.
• The company’s arguments on disproportionality failed.
• Timely filing of returns is a necessary feature of the VAT regime.

There is a legal saying: ‘hard cases make bad law’ which can be interpreted as basing a generally applicable legal principle on an extreme example is likely to create rather than solve problems. However it is also true that ‘bad laws make hard cases’. I am regularly astonished by the harsh and capricious results that can be produced by the default...