Why reducing VAT penalties is more important than ever


Have you noticed an upward trend in the number of VAT penalties your clients are receiving?

It seems that HMRC have hardened their attitude towards charging VAT penalties. This is partly down to the criteria now used to determine whether a penalty is chargeable which is based on the taxpayer’s behaviour. Another reason commonly cited by tax experts is that there is increasing pressure on HMRC to raise revenue and reduce the tax gap.

Under the current penalty regime HMRC need only be of the view that an error was the result of ‘careless’ or ‘deliberate’ behaviour on the part of the taxpayer in order to issue a penalty. The worse the taxpayer’s behaviour is deemed to be the higher the penalty HMRC can raise. ‘Deliberate and concealed’ behaviour can result in a maximum penalty charge of 100% of the VAT error made.

Whilst the potential costs involved in challenging an HMRC penalty could be a deterrent for many businesses it is worth noting that a high proportion of appeals do result in a reduction in or overturning of penalties charged. Also just accepting a penalty that may be considered unfair could have wider ramifications for the taxpayer. The level of VAT errors and penalties a business incurs could impact on the risk category allocated to the business by HMRC. The higher the risk category a business falls into the higher the level of future scrutiny they are likely to be subjected to and any businesses falling within the SAO regime can expect a more rigorous examination of their compliance with the requirements.

If you need to find out more about the VAT penalty regime for errors and the possible reductions in for challenging a penalty charge, read our Titan VAT Training series of guides UK VAT Penalties Guide. You can view our helpful guide by clicking here.

We will following up on this VAT blog post next month on what constitutes a ‘reasonable excuse’ for avoiding VAT penalties.