Tag Archives: new-VAT-penalties

VAT: Updated guidance on deliberate behaviour

By   21 February 2023
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HMRC has published updated guidance on deliberate behaviour. It clarifies the definition of these actions in respect of extended time limits.

What is deliberate behaviour?

A deliberate inaccuracy in a document occurs when a person (or another person acting on behalf of that person) knowingly gives HMRC an inaccurate document.

“A person who submits a document containing a deliberate inaccuracy might assert that they did not intend to cause a loss of tax. For the purpose of assessing this loss of tax, the person or any persons acting on their behalf will be treated as deliberately causing the loss of tax if they consciously intended to mislead HMRC”.

Examples

  • knowingly failing to record all sales
  • describing transactions inaccurately or in a way likely to mislead
  • lodging a VAT return that includes a figure of net VAT due that is too low because the person does not have the cash at that time to pay the full amount, and later telling HMRC the true figure when he has the funds to pay
  • similarly declaring less tax due for aggregates levy, climate change levy, landfill tax or excise duty because the person does not have the funds at that time to pay the full amount

(This list is not exhaustive and HMRC provide more examples in the guidance).

Why is it important?

Mainly, there are different time limits within which HMRC can take action.

A 20 year time limit applies where tax has been underdeclared, or over-repaid, as a result of a deliberately inaccurate return or other document. The normal cap is four years.

Other action

Although HMRC can make assessments to recover any tax lost, it also have a criminal investigation policy and will refer the most serious cases for consideration of criminal proceedings where appropriate.

If you or your clients are subject to an investigation, please seek professional advice immediately. There is a dark side to VAT.

VAT: Changes to late returns and payments penalties announced

By   8 March 2021
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HMRC have announced changes to the penalties applied to failure to submit VAT returns on time. Similar changes will be made for late payment penalties. it is anticipated that these changes will apply from 1 April 2022. Changes will also be made to the way interest is charged.

The new penalty regime replaces the existing default surcharges. The new penalties use a points based system . Businesses will no longer receive an automatic financial penalty if they make a late return. Instead, it will incur penalty points for missed obligations before a financial penalty is levied.

Penalties for late submission of returns

VAT registered businesses will receive a point every time they miss a submission deadline. At a certain threshold of points, a financial penalty of £200 will be charged and the business will be notified. A penalty will be charged for that failure and every subsequent failure to make a submission on time, but the points total will not increase.

The penalty thresholds will be:

  • Annual returns – 2 points
  • Quarterly returns – 4 points
  • Monthly returns – 5 points

Points expiry

Points will have a lifetime of two years calculated from the month after the month in which the failure occurred.

However, points will not expire when a business is at the penalty threshold to ensure an achievement of a period of compliance to reset the points.

Penalties for late payment and interest harmonisation

The new Late Payment Penalties regime will replace the the Default Surcharge, which served as a combined late submission and late payment sanction.

There are two late payment penalties applicable; a first penalty and then an additional or second penalty, with an annualised penalty rate.

First Penalty

A business will not incur a penalty if the outstanding tax is paid within the first 15 days after the due date. If VAT remains unpaid after Day 15, the business incurs the first penalty. This penalty is set at 2% of the tax outstanding after Day 15. If any of this tax is still unpaid after Day 30, the penalty increases to 4% of the tax outstanding after Day 30.

Second Penalty

If tax remains unpaid on Day 31, a business will begin to incur an additional penalty on the VAT that remains outstanding. It accrues on a daily basis, at a rate of 4% per annum on the outstanding amount. This additional penalty will stop accruing when the taxpayer pays the tax that is due.

Time-to-Pay arrangements

HMRC offers the option of requesting a Time To Pay arrangement. This will enable a business to stop a penalty from accruing any further by approaching HMRC and agreeing a schedule for paying their outstanding tax.

Interest Harmonisation

HMRC will charge interest on tax that is outstanding after the due date, regardless of whether any Late Payment Penalties have been charged. Interest will apply from the date the payment was due until the date on which it is paid. It will be calculated as simple interest at a rate of 2.5% + the Bank of England base rate.

Where a business has overpaid tax, HMRC will pay Repayment Interest on any VAT due to be repaid either from the last day the payment was due to be received or the day it was received, whichever is later, until the date of repayment. Interest will be paid at the Bank of England base rate less 1% (with a minimum rate of 0.5%).

Reviews and appeals

Businesses will be able to challenge a point or penalty through both an internal HMRC review process and an appeal to the courts (in a similar way to assessments for VAT are challengeable).

More on late returns here and on late payments here.