When the 30% penalty was introduced, in 2009, in respect of VAT errors that did not involve dishonesty, but were “careless”, this replaced a 15% penalty for any error over a certain size. Under the old rules it was irrelevant whether or not enough care had been taken, but the penalty could be waived if the taxpayer passed the tough test of “reasonable excuse”.
The obvious improvement in the current regime is that an error which is not careless should not receive any penalty at all, and this does not involve having to invoke “reasonable excuse”. But that was only going to be useful in practice if HMRC officers accepted that most errors were inadvertent, and did not take the view that most were careless. Not enough water has flowed under the bridge yet to determine the kind of slant that VAT inspectors will apply to this ticklish distinction. However, the very recent VAT tribunal case in Express Food Supplies: Al-Faham (TC00728) warns us just how perilous the position is.
This taxpayer was, unsurprisingly, a grocer. Most of the products he sold were zero-rated. This should involve relatively little output tax and relatively little input tax. In the period in question he was entitled to roughly £1,000 worth of input tax. His temporary book-keeper misunderstood the book-keeping arrangements, and where VAT was not shown on the invoice, he/she simply posted the net figure to the VAT column. The result was that the input tax figure was effectively inflated by twenty times.
The proprietor approved the VAT return without giving sufficient thought to whether the stated figures seemed credible. He did not carry out a “reality check”. HMRC imposed a penalty (which was reduced from 30% to 15%). The taxpayer had to admit that there had been carelessness. In this case, he had relied too uncritically on the temp.
He ought to have been able to determine at a glance that the claim that he was submitting was excessive by several factors. He should not have put HMRC’s money at that level of risk by not engaging his thought processes when signing off the return.
The problem for somebody in his position is that the penalty is not geared to the amount of tax he ought to pay, but the amount of tax that he erroneously claimed. 15% of a figure which is twenty times greater than his input tax, is of course, three times greater than the input tax that he would have claimed.
Thank goodness he did not claim £200,000 by mistake.
It is absolutely vital for businesses which rely on accountants or bookkeepers to apply trend analysis (comparison with previous returns) and strategic review (“reality check”) to ensure that the simple act of approving and submitting the return does not suddenly give rise to an absurdly large penalty which is entirely out of kilter with the underlying business
Terms & Conditions
- Information and ideas shared in this blog are intended to inform rather than advise. Circumstances vary greatly and if you feel that the information provided is beneficial you should contact us before implementation. We will not accept responsibility for any financial or other loss incurred as a result of the action you take from reading these blogs and their comments.
- haysmacintyre reserves the right to delete or alter posts at its own discretion and without notice or explanation. Comments posted on the site which haysmacintyre deems to be unacceptable or inappropriate will be removed. This includes but is not limited to:
- anything which is obscene, pornographic or otherwise objectionable or illegal;
- violations or infringements of any statutory, common law, copyright, design right or any other intellectual property rights of any other person or entity;
- commentary which contains material which would be in breach of confidence or in contempt of Court;
- viruses or other similar contaminating or destructive features.
- Outside of UK office hours, comments will not appear on the site until they have been accepted by the moderator.
- Your name will be displayed by your comment. All other personal details will remain private. haysmacintyre will not add your details to any of its mailing lists or its database unless specifically asked to do so. (Please complete our newsletter sign up form if you want to be added to our mailing list). Your details will not be shared with third parties.
- Material may not be copied, reproduced, republished, downloaded, posted, broadcast or transmitted in any way except for your own personal non-commercial use.
- While haysmacintyre will keep web links as up to date as possible, it cannot guarantee the suitability or accuracy of content to any other sites.
- For more information please read our full privacy policy.
- If you have questions or concerns regarding the use of the haysmacintyre blog please call our marketing team on 020 7969 5668 or email marketing@haysmacintyre.com
Media right usage
If you seek permission to use these blogs or any of their content on your own website or as the basis of an article you are writing, or to interview the author, please contact our marketing department on 020 7969 5668.