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HMRC internal manual

VAT Civil Penalties

Misdeclaration penalty: misdeclaration penalty for large errors in a single VAT accounting period: penalty for late returns

Businesses who accept centrally issued assessments and do not notify us within 30 days that they are too low but after 30 days submit a return, may be liable to a misdeclaration penalty (MP).

However, VATA 94 Section 63 (10) says that a penalty is not due if

“at a time when he had no reason to believe that enquiries were being made …into his affairs…the person concerned furnished to HMRC full information in respect of the inaccuracy.”

So you should ask yourself whether the submission of the return meets this criteria. In most cases we would expect a return to give us all the necessary information - the more difficult question is when was the return submitted?

If the business does not meet the criteria of VATA 94 Section 63 (10) it may be liable to a MP.

The amount of tax that would have been lost if the inaccuracy had not been discovered should be subject to the MP objective tests using the TAT as the basis of the objective test for the late return, see VCP10731. There is no D2211 print produced for late returns and officers should perform the TAT objective test manually and process the penalty manually.

Note: The penalty assessment letter at VCP10812 should be adapted to cover the late return penalty. The first subparagraph # should be replaced by the wording

“Following your failure to notify HMRC of the understatement within 30 days of the issue of the tax assessment issued to you on DD\MM\YYYY the late submission of your return has caused a breach of the objective tests for misdeclaration penalty under Section 63 VAT Act 1994”

A penalty issued in these circumstances does not count as a material error for repeated misdeclaration penalties, see VCP10740, there is no similar provision under Section 64 for repeated errors.

You should also be aware that these cases may involve default surcharge (DS) as well as MP. If the MP is greater than the DS the MP should be mitigated by the amount of DS.