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HMRC internal manual

VAT Civil Penalties

Belated Notification Penalty: Reasonable excuse: Ignorance of the law

Please see the Compliance Handbook CH70000 for more details about the new failure to notify penalty.

It is difficult to establish the dividing line where a Tribunal would allow reasonable excuse between cases which only require a basic knowledge of primary VAT law and cases where VAT law is more complex.

In the case of Jo Ann Neal LON/86/222, ignorance of the law was dismissed as a reasonable excuse. The appellant was a fashion model with no experience of VAT who contested the nature of her work meant she did not know whether, or if so when, her turnover would amount to a particular figure.

The tribunal held that her ignorance did not provide her with a reasonable excuse, a decision that was up held on appeal.

However the judge made a distinction between ‘basic ignorance of the primary law governing VAT and on the other hand ignorance of aspects of law which less directly impinge on such liability’.

This has led to the case being cited in subsequent appeals contesting that anything other than the basic ignorance of primary law could be seen as a reasonable excuse.

Each case must be considered on its merits. If you consider that there is a complex area of VAT law at issue which the trader could not necessarily be expected to be fully conversant with, you should consider

  • mitigation of the penalty, see VCP10445, or
  • in exceptional cases withdrawal of the penalty on the grounds of reasonable excuse.

If you consider that the trader’s belated notification error amounts to ignorance of basic VAT law you should maintain the penalty.

If you are in doubt as to whether to allow mitigation or reasonable excuse on the basis of ignorance of VAT law contact Tax Administration, Litigation and Advice (TALA), see VCP10140, for advice.