Hello. I'm dealing with a new client case where a building subcontractor failed to registered for VAT. Whilst ignornance of the law is of course no defence, he didn't previously register because the majority of work was zero-rated, and he didn't realise this counted towards the VAT threashold. Anyway, the client's contractors have now agreed to a VAT re-charge. So, my client will now charge the VAT. The contractors will reclaim it on their next Return and pay the VAT to my client, who shall then pay it to HMRC. Quite a pointless exercise, because no additional tax revenue is raised. Apart from a penalty. HMRC plan to impose a reduced 15% penalty on the VAT. That'll mean a penalty of £5000 or so. I have of course claimed that whilst the client was ignorant of the law, his excuse is reasonable. I have also pointed out to HMRC that no tax revenue was lost. Is there any way of reducing the penalty?
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It's already reduced
A 15% penalty is already reduced, it seems reasonable to me. What you could do it ask for the penalty to be suspended - if this is the first mistake and there is no tax cost, HMRC might accept this.
No input VAT?
Didn't your client incur VAT on his expenses during the period in question.
This would reduce the VAT charge and thereby reduce the penalty.
If he mainly did zero rated surely he would be in a refund position each quarter.