New penalty régime
HMRC have released Revenue & Customs Brief 19/08 on the New penalties that apply to returns submitted for tax periods starting on or after 1 April 2008 and due to be submitted after 31 March 2009. The new rules apply to several of the taxes that HMRC administer including VAT.
The new penalty régime will be applied when a person (HMRC’s term that also includes businesses operated by companies, partnerships and sole traders) does not take reasonable care when completing returns.
Because of the way that the new rules come into effect it can affect businesses differently depending on the type of VAT return period they are on. Any business will be affected when they are on:
How will HMRC decide when to apply a penalty?
According to the Revenue & Customs Brief there are two conditions that have to exist for a penalty to be applied. These are set out in the Brief:
1. The document given to HMRC must contain an inaccuracy that leads to:
an understatement of the person’s liability to tax a false or inflated statement of a loss by the person a false or inflated claim to repayment of tax 2. The inaccuracy must be careless, deliberate or deliberate and concealed.
A penalty can also be charged where, in the absence of a return, we issue an assessment which is too low and the person does not take reasonable steps to tell us of the under-assessment within 30 days of the date of the assessment.
By taking reasonable care a business will be able to avoid or mitigate the level of the penalty that can be applied. Businesses that are generally compliant and attempting to get their tax right that help HMRC by disclosing any errors they discover, assist with establishing the amount of extra tax due and give HMRC access to their records to enable the figures to be checked might be offered a suspended penalty provided the business takes certain agreed steps to avoid making the same errors in future. If the terms of the suspension, which can last for up to two years, are broken the penalty becomes payable.
Conclusion
The new rules are a move away from the old system that appeared to assume a taxpayer was guilty of a heinous offence even where the error arose from a mistake. There is potential for the new rules to be applied harshly by some inspectors, and less so by others. The period after 1 April 2009 will be watched with interest to see how the new rules are applied. HMRC are confident that they will be applied evenly and will encourage all taxpayers to do their best to get their tax right – no matter which tax it is.
What to do?
Be diligent. Take care when preparing your VAT returns, and submit them in good time. If you are aware of any possible difficulties take steps NOW to put them right.
Being penalised for getting it wrong is throwing good money down the drain.
If you would like to see the Revenue & Customs Brief you can get it from HMRC’s website.
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