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HMRC internal manual

VAT Civil Penalties

Belated Notification Penalty: Calculation of a penalty: Allowable deductions from relevant VAT

Belated Notification Penalty has been replaced by the Failure to Notify penalty introduced by Schedule 41 of the Finance Act 2008. The Failure to Notify penalty applies to obligations to notify HMRC of a liability to be registered for VAT on or after 01/04/2010. The Belated Notification Penalty under Section 67 VATA 1994 continues to apply to obligations to notify a liability to be registered for VAT before 01/04/2010.

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

Allowable deductions for tax on stocks and assets VAT Regulations 1995

Under VAT regulation 111 of the VAT Regulations 1995, HMRC may allow a taxable person to treat tax incurred on goods on hand at the effective date of registration (EDR), and on services connected with the business within the 6 months preceding the EDR, as if it were input tax.

Irrespective of whether or not the EDR falls before, or after 25 July 1985, the penalty for belated notification can be minimised by taking the full amount of such tax into account when determining the relevant VAT.

Allowable deductions for acquisitions and distance sales

This deduction is covered by the VAT Act 1994, Section 67, subsections 5 and 6. It applies where there is a belated notification of registration.

It does not apply where traders exempt from registration are late in notifying a change in the nature of supplies or a material alteration in the proportion of zero rated supplies or delay notifying an acquisition supply which is not zero rated.

If the trader is required to account for acquisitions and distance sales the ‘relevant VAT’, for acquisitions and distance sales can be reduced by any VAT paid on the supply in another Member State.

This will apply where goods have been acquired and VAT paid to the supplier or goods supplied as distance sales where VAT is paid at origin in another Member State.

The VAT paid in another Member State can be deducted from the VAT payable in the UK for each individual supply on a transaction by transaction basis for the relevant period when calculating ‘relevant VAT’.

The credit for VAT paid in another Member State cannot exceed the VAT payable in the UK for the supply.