VAT Articles

VAT Penalties for Timing Errors

The new penalty regime has been fraught with problems since its phased introduction in 2008.

A change has been announced which deals with the situation where an error in one VAT period would have been automatically reversed in the next period.

FA 2007, Sch 24, para 8 introduced a concept known as 'delayed tax'. This was where VAT was declared later than it should have been, and included a situation where input tax was claimed earlier than it should have been. The legislation provided for a penalty of 5% of the VAT amount per year. This was applied pro rata for any period less than one year.

A new announcement addresses the situation where a VAT inspection occurred after the error, but before the compensating error was included on a Return. In such a situation, the Officer would not assess under the 'delayed tax' provisions, even though the error would have been adjusted automatically anyway. This would lead to a much heavier penalty. HMRC Brief 15/11 explains that in future the 'delayed tax' provisions will apply in such circumstances, as long as HMRC are satisfied that the error would have been automatically adjusted on the next Return.

This new guidance is applied retrospectively. Where a Client has been assessed in the circumstances described, a reduction in the penalty is appropriate. He should contact HMRC, and ask them to review the penalty.