Guidance

Late registration penalty for VAT (Notice 700/41)

Find out when and how HMRC may penalise you if you fail to register for VAT at the right time, and your rights to appeal against the penalty.

Detail

This notice cancels and replaces Notice 700/41 (February 2011).

1.Overview

1.1 Scope of this notice

This notice covers the late registration penalty for VAT obligations to notify a liability to be registered before 1 April 2010.

This penalty has been replaced by the failure to notify penalty regime, which applies where the obligation to notify liability to be registered arises on or after 1 April 2010. See fact sheet CC/FS 11 for details of the failure to notify regime.

2.What this notice is about

This notice explains:

  • when and how HMRC may penalise you if you fail to register for VAT at the right time
  • your rights of appeal against the penalty

Before you read this notice you should read Notice 700/1 should I be registered for VAT which will help you decide whether you must register.

3. Calculating and notifying penalties

3.1 When a penalty may apply

We may penalise you if you fail to notify us at the correct time that you should be registered for VAT.

The time limits for registration are explained in Notice 700/1 should I be registered for VAT.

The amount of the penalty will depend on the amount of VAT due and how late you were in telling us that you should have registered.

3.2 How the penalty is calculated

The penalty is worked out as a percentage of the VAT due (output tax less input tax), from the date when you should have registered to the date when we either received your notification, or became fully aware that you were required to be registered. The rate of penalty depends on how late you were in registering:

If you registered Then the penalty rate will be
not more than 9 months late 5%
more than 9 months but not more than 18 months late 10%
more than 18 months late. 15%

There is a minimum penalty of £50.

3.3 Notifying the penalty

We’ll notify you of the amount in writing. We’ll also explain how to appeal against the penalty if you think you should not be penalised or the amount of penalty is wrong.

4. Reasonable excuse and mitigation

4.1 What we mean by reasonable excuse

If we, or an independent tribunal, agree that there’s a reasonable excuse for the late registration, you won’t be liable to a penalty.

There’s no legal definition of reasonable excuse but we’ll look closely at the circumstances of each case and the conduct that led to the late registration. If you can show that your conduct was that of a conscientious business person who wanted to comply with VAT requirements, then there may be a reasonable excuse.

The following guidelines show circumstances where there might be a reasonable excuse for failing to register on time.

Bereavement

We’ll normally treat the death of a close relative or domestic partner around the time that you should have told us about your liability to be registered as a reasonable excuse.

Doubt about liability of supplies

Where there’s written evidence of an enquiry about the liability of supplies and the liability has remained in doubt.

Uncertainty about employment status

Where there’s genuine doubts as to whether you’re self-employed, or where you can produce correspondence with HMRC about these doubts.

Serious illness

We’ll normally treat the serious illness of either yourself or a close relative or domestic partner around the time that you should have told us about your liability to be registered, as a reasonable excuse.

Your claim of reasonable excuse won’t necessarily be accepted just because it fits into one of these categories. Any decision to accept reasonable excuse will be based on all the circumstances of your individual case.

What’s not a reasonable excuse

Genuine mistakes, honesty and acting in good faith aren’t accepted as reasonable excuses for penalty purposes. Also the law provides specifically that you don’t have a reasonable excuse if:

  • you can’t afford to pay
  • you or a person acting on your behalf acted in good faith

If the circumstances of your case fall short of reasonable excuse, there may still be grounds to mitigate (reduce) the penalty.

4.2 Mitigation

A penalty can be reduced if there are mitigating circumstances that fall short of a reasonable excuse.

Like reasonable excuses, the law does not define the grounds for mitigation but it specifically excludes:

  • your lack of funds to pay any tax or penalty due
  • the fact that little or no tax has been lost
  • the fact that you acted in good faith

When we consider mitigation we’ll consider all the facts which led to the late registration. The amount of mitigation allowed will depend on the circumstances of the case. We can mitigate the penalty to nil but such cases are likely to be exceptional.

5. Appeals

5.1 If you disagree with the penalty

If you disagree with either your liability to penalty or the amount of the penalty you have the statutory right to an independent review. You should request a review within 30 days of the date of our letter notifying you of the amount of the penalty.

If you:

  • think that you have a reasonable excuse for failing to register on time (see paragraph 4.1)
  • consider that you have been penalised at too high a percentage
  • think that there are mitigating circumstances which warrant reduction of the penalty (see paragraph 4.2)

5.2 If you disagree with an appeal

You can appeal to an independent tribunal within 30 days of the date of our letter notifying you of the amount of the penalty or, if you have opted for a review, within 30 days of our letter telling you of the conclusions of our review.

More information on reviews and appeals.

You can find out more about appealing to the tax tribunal.

The tribunal can consider whether there’s a reasonable excuse and can also increase as well as decrease any amount of mitigation that we’ve allowed.

Your rights and obligations

Read Your Charter to find out what you can expect from HMRC and what we expect from you.

Help us improve this notice

If you have any feedback about this notice email: customerexperience.indirecttaxes@hmrc.gsi.gov.uk.

You’ll need to include the full title of this notice. Do not include any personal or financial information like your VAT number.

If you need general help with this notice or have another VAT question you should phone our VAT Helpline or make a VAT enquiry online.

Putting things right

If you’re unhappy with HMRC’s service, contact the person or office you’ve been dealing with and they’ll try to put things right.

If you’re still unhappy, find out how to complain to HMRC.

How HMRC uses your information

Find out how HMRC uses the information we hold about you.

Published 6 November 2012