We submitted a VAT application for a limited company client on 10th July with a registration date of 1st May. They're an online retailer, hadn't engaged an accountant until that point and quite simply didn't have up to date records showing they'd hit the threshold. The VAT acceptance notification was received the same day and the May-July VAT return filed on 5th Sep. Amount due of £1870.35 paid on the 8th Sep (for some unknown reason).
Anyway, the client has this morning received a failure to notify penalty covering 1st May - 9th July for £1246. We've never had a penalty of this sort so any useful guidance on how best to proceed at this point would be most helpful. The amount certainly seems excessive so one would presume they're viewing it 'deliberate not concealed' as opposed to 'non-deliberate'.
I'm quite sure it won't be taken into account but there's absolutely no loss of revenue to HMRC yet they wish to penalise a perfectly good small business for not completing a form fast enough.
Replies (7)
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Penalty guidance 700/41
Reading the guidance the rate of penalty is 5% of VAT liability arising from due date to notify to the date of actually notifying HMRC of liability to be registered to actual liability. [Minimum £50 penalty].
If £1,246 is the VAT liability arising from due date to notify to actual date notified then x5% = £ 62.30 penalty.
I would be surprised if the penalty was actually £ 1,246 as this does in no way accord with the published guidance at...
https://www.gov.uk/government/publications/vat-notice-70041-late-registr...
£1246
£1246 looks to me too like the time apportioned VAT liability for the default period.
I'd be suggesting that there was no loss of revenue, VAT paid pretty much on time (it would have helped if it wasn't a day late) and be looking for a zero penalty.
Any chance that you can read the letter instead of your client ? He may have misunderstood what it says. Clients often do. Only two months ago, I had to fend off a demand to take HMRC to task for charging a client a zero penalty on the late transfer of a VAT registration number.
I'd disagree
I'd definitely disagree with a 100% penalty as a matter of course.
This is a trivial offence.
1st Letter
I have had to deal with two failure to notify penalties in the last 12 months. In both of these cases my clients were sent a letter asking numerous questions about the late registration, the reason for it, etc etc. We completed this form and sent back before the deadline and in both cases the penalty was reduced to a very minimal amount (about 1% of the VAT owing). In both of these cases the registration was 12 months late.
Has the client filled out that first letter? Was the first letter received? This first letter only appears to be sent to the client.
Penalty Rate
The penalty calculation is crucial, as it will categorise it as deliberate or careless, with careless being at a lower rate. Do challenge the category; and assuming you notified 'umprompted' a lower rate should apply.
Or, ask a VAT specialist to have a look at the correspondence and calculation, to give an idea how to proceed.