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HMRC internal manual

VAT Civil Penalties

HM Revenue & Customs
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Default Surcharge: Discretion, reasonable excuse and mitigation: When should the surcharge process be inhibited

Despite the Dollarland decision, see VCP10531, there areoccasions when discretion should be exercised on a limited basis and surcharge defaultsinhibited. The two categories of inhibit are

  • National Inhibit - This may be set by the Central Policy Tax Administration & Advice Team to inhibit surcharge processing for all traders, for example during periods of industrial action such as a prolonged national postal dispute.
  • Trader Inhibit - Local offices may inhibit surcharge action for one or more traders or periods. This can be achieved by processing a VAT 719.

When considering whether to use discretion and set an inhibit in an individual case,you should take account of the

  • circumstances of the particular case
  • need to maintain fairness and impartiality in the application of surcharge defaults
  • need to encourage compliance

The following are examples of circumstances which may justify a trader specificsurcharge inhibit

  • Death of a sole proprietor.
  • Payment trader submitting monthly returns. Once a SLN has been manually issued, a period specific inhibit must be set for the trader’s next tax period. This is to ensure that the trader receives a SLN before incurring a liability to surcharge.
  • Misapplied/missing remittance (for example where a payment for a current return is received on time but is applied to the wrong registration.
  • Duplicate registration.
  • Invalid entry in the register.
  • Where a reasonable excuse has been established prior to a default being recorded.
  • Traders for whom a cash deposit is held as security.