VAT penalty for not advising HMRC of an under assessment

VAT penalty for not advising HMRC of an under...

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I am an accountant in practice for a number of years and have just come across my first VAT penalty under FA 2007 Sch 24 Para 2 – Failure to notify HMRC of an under-assessment to tax. A client was admittedly behind with the presentation of his VAT returns and therefore HMRC issued central assessments. The client had not submitted the required returns when a VAT compliance visit was booked. As the correct returns had not been presented within 30 days of the central assessments by HMRC the compliance officers issued a penalty of 30% less the default surcharge that had already been levied.

I have dealt with a number of seriously late VAT returns since the introduction of this legislation for returns due on or after 1st April 2009 but have never had this penalty levied. Does anybody have experience of this matter, do you have a ball park figure of the number of penalties actually levied against the theoretical potential that could have been. Is this perhaps the application of the penalty regime in these circumstances to try and increase the tax take. Any thoughts would be most welcome. Thank you.

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By petersaxton
09th Jul 2014 17:43

New approach

I think HMRC are trying all sorts to increase their tax take. I've not come across it before but I think they are able to do it. I would still object and see what happens.

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By The VAT Doctor
09th Jul 2014 19:57

Hard tactics

Even worse, if HMRC issues estimated assessments and you know they understate the liability, but pay them anyway, HMRC have been known to prosecute on the basis of fraud if there is enough of a diference.  In your case, is there a reasonable excuse you can offer?  In the real (non-HMRC) world, there are all kinds of pressures and issues that come into play that might interfere with the normal course of events.  if they are unknown and inescapable, this can often help.

Keep battling!

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By gary_taylor
10th Jul 2014 12:49

Thank you for your input.

HMRC are clearly correct in law. I think my best course of action is to put forward the reasonable excuse argument, the client had a very disabled child who was a major factor in the time he was able to direct towards his VAT returns and his ability to work and thus have the funds to pay the liability. I am also considering a request under the Freedom of Information Act. If I can prove that the application of this penalty has been inconsistently applied or applied in a very small percentage of cases then I may be able to claim prejudice.

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