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HMRC internal manual

VAT Assessments and Error Correction

Prime assessments procedures: Schedule 24 penalties for under assessments

In addition to inaccuracies in documents as detailed in CH81000, Schedule 24 penalties also apply where a person has failed to take reasonable steps to notify HMRC that an assessment made in the absence of a return is inadequate. See, CH81090 and CH81170.

The person has 30 days from the date of issue of the assessment to take steps to notify HMRC that it is inadequate.

They do not need to complete a return; a statement that the assessment is inadequate will suffice.

It is a matter of fact whether there was any contact with HMRC within 30 days of the assessment. You will need to make a judgement as to whether that contact constituted reasonable steps to bring the under-assessment to HMRC attention.

There is no general extension on the 30 day limit but a reasonable attitude should be taken where a person appears to have tried to comply.

If the amount of tax that should have been declared is greater than the prime assessment, the additional tax may still be liable to a penalty if the trader declares the additional tax on the return.

If after the issue of an additional assessment the trader were to render their return, the original potential lost revenue (PLR) would then be re-tested.

If a tax assessment has been paid and no return for the period was subsequently made you should attempt to obtain the return from the trader. If a return is received, this should be marked with the date of receipt.

If you do not receive the return you should take the following action

  • ignore a difference if it is below the assessment de-minimus level
  • if an amount is due to be assessed, make and notify the assessment using the VAT641 procedures. In calculating additional assessment for traders in the Inflated Assessment Regime (IAR) you should use the total prime assessment (i.e. base assessment plus inflation element) to represent the liability to date. The additional assessment will therefore equal the true amount of tax less the total prime assessment
  • where an additional assessment is issued to a trader who is the subject of a 100% Inflated Report (D1430), you must report this immediately in line with local procedures in order to amend the inflation factor
  • record the evidence on which the additional amount is based in your visit report.

For further guidance on raising penalties in cases of under-assessment please see CH411000.