VAT Penalties

Tax Update (July 2008)

VAT Penalties

HM Revenue & Customs (HMRC) have extended their new system of penalties for errors in tax returns to include claims for VAT refunds.

Whilst most people do get their VAT returns correct, HMRC sees the new systems as a means to encourage those that don't to be more careful and stop them from gaining an unfair advantage.

The new penalties apply to VAT claims under EC 13^th Directive (i.e. businesses based outside the EU) and, under EC 8^th Directive (i.e. businesses based in other EU member states).

Even if you do make an error you may not automatically get a penalty as the system is based on taking reasonable care to get it right. HMRC have given some guidance on what they see as reasonable care:

Keeping correctly completed invoices, vouchers and receipts to support your claim and sending these to HMRC with the claim;
Ensuring that you have, and provide, an up to date certificate of status of business activity;
Checking what goods and services you can claim VAT on from the UK and, when you do not understand something, seeking advice from them or an agent familiar with UK refund rules and procedures;
Telling HMRC promptly about any mistake you discover after you send them a claim.

Penalties may be reduced where you tell HMRC about errors before they ask, and where you show co-operation with them. The penalties are divided into 4 categories with minimum and maximum rates as follows:-

	Min%	Max %
Where you show reasonable care	0	0
Where you are careless	0	30
Where the act was deliberate	20	70
Where the act was deliberate and concealed	30	100

You do have the right to appeal against the penalties.

Mentor Tax can advise you on any issue relating to Tax, VAT, PAYE and much more – call the Mentor Tax Advice Service on 0800 634 7000 if you have any concerns.