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HMRC internal manual

VAT Civil Penalties

HM Revenue & Customs
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Misdeclaration penalty: Factors that may affect the penalty: Relaxations

Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after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

A number of relaxations in the administration of the misdeclaration penalty (MP) regime have been introduced since 1991. Assessing officers should apply the concessions unless there is a compelling reason for them to be overridden. In such cases the Central Policy Tax Administration and Advice Team should be consulted, see VCP10721.

Permission to override a concession will only normally be given if the trader has been:

  • Previously notified in writing of the particular error, or
  • assessed on a separate occasion for a similar error in the past, or
  • there are exceptional circumstances that justify the assessment of MP.

Period of grace

This relaxation was introduced for all errors discovered on or after 20 March 1991. There is no period of grace on additional assessments.

When you discover an error on a VAT return on or before the due date for the following VAT period you should normally set the MP inhibit.

This is intended to make sure that traders have enough time to correct errors in those periods spanning an assurance visit. The period of grace is a fixed time span which is not dependent on the rendering of a VAT return.

For example errors found in the period ending 31 March 1995:

Accounting period Period of grace
Monthly Up to the end of May 1995 (2 months)
Quarterly Up to the end of July 1995 (4 months)
Annual Up to the end of May 1996 (14 months)
Final Three months after the due date of the return

Nil net tax

This relaxation applies to all errors found on or after 20 March 1991. For a single VAT registered entity where there is a return with an under/over-declaration which has been corrected by a corresponding over/under-declaration in the following VAT period which relates to the same transaction, the MP inhibit should normally be set. This can apply to a series of transactions if each one meets the criteria. If, however, the error does not relate to the same transaction or if the error has been corrected in a later period (i.e. not in the following period), then this relaxation does not apply and you should not set the inhibit signal.

Scheme calculations

If you raise an assessment to correct errors for periods during the course of a scheme calculation, this will have an effect on the annual adjustment. The line on the VAT 641 assessment which corrects the annual adjustment should be inhibited.

Self supply of development leases

From 1 January 1992 where a tenant did not notify a landlord of a self supply the MP inhibit should be set unless there is evidence of collusion or manipulation.