Penalties For Incorrect VAT Returns

The new penalty regime charges penalties determined by culpability.

You are expected to take reasonable care by keeping reliable records and checking what you need to do when you don’t understand something. For example, if you are unsure as to whether a supply is zero rated, it is worth ringing the vat helpline for advice.  They will usually refer you to a vat notice which will explain when you can zero rate that particular supply and they will log the reason for your call.  If after doing this you still make a mistake, they can at least see that you have taken reasonable care when reaching your decision and hopefully suspend or reduce the penalty.

The more serious the reason for the error, the higher the penalty can be and is a percentage of any extra tax due.

They will charge a penalty if the inaccuracy:

  • Is careless – you failed to take reasonable care
  • Is deliberate – you knowingly sent an incorrect return
  • Is deliberate and concealed – you intentionally sent an incorrect return and tried to conceal it.

HMRC can reduce penalties within the minimum and maximum range shown below if you:

  • Tell them as much as you can about any inaccuracy (disclosure)
  • Help HMRC work out what extra tax is due
  • Give HMRC access to your records so they can check your figures

The emphasis is on the quality of the disclosure.  For example, a disclosure is unprompted if you notify them of the error.  However if you told them of the error after being informed of a VAT inspection, then the disclosure could be regarded as prompted and the penalty will be higher.

You will correct the error either through your next vat return or on form VAT652. Vat notice 700/45 explains which method you should use.  However, if you correct the error within a VAT return, you must note that correcting the error in this way is not regarded as a disclosure and is therefore not an unprompted error. It is ALWAYS advisable to inform HMRC in writing of any sizeable error corrections that you have made via the VAT return, explaining the error and your grounds for seeking a reduction to any penalty.

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