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HMRC internal manual

VAT Civil Penalties

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HM Revenue & Customs
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Misdeclaration penalty: Factors that may affect the penalty: Pre repayment credibility queries

Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after 01/04/2009. Misdeclaration penalty will still apply where the due date is before 01/04/2009.

Please see the Compliance Handbook CH80000 Penalties for Inaccuracies for further details.

Although an assessment of tax cannot be issued in this situation, the VAT Act 1994 allows assessments of a misdeclaration penalty (MP) to be made. However the D2211, see VCP10823, list of potential penalties does not include traders who have exceeded the objective tests on a manually amended pre repayment credibility return.

A trader cannot avoid a misdecalration penalty by agreeing to amend the VAT return. However, before issuing a MP, you should consider the “period of grace” relaxation. In most cases MP will not be appropriate as the relaxation will normally apply. On the rare occasion you consider that MP is due the trader should be informed. You should make sure that a clear record is kept of how the penalty was calculated for future reference.

A repeated misdeclaration penalty MP(R) and the issue of a penalty liability notice (PLN) are not appropriate for errors on pre repayment credibility returns. However, if you discover a further error in a period which was the subject of a pre repayment credibility query and you consider the trader to have a particular compliance problem, you should manually test all the errors to see if an MP(R) penalty would be triggered.

To do this you will need to make sure that all the conditions in VCP10742 are met (the Penalty Liability Notice will need to be typed and served manually) and the trader is monitored closely for further assessments, amendments, withdrawals or voluntary disclosures that may result in errors no longer meeting the objective tests.