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HMRC internal manual

VAT Civil Penalties

Misdeclaration penalty: Discretion, reasonable excuse, and mitigation: Types and size of error

Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after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

The following questions should be addressed when considering reasonable excuse

  • How obvious was the error?
  • Was it picked up during the course of simple checks?
  • What was the size of the error in relation to not only the gross amount of tax, but the net tax declared?
  • Did the error distort the normal pattern of VAT returns rendered?
  • Was the error found within the normal business/accounting activities or was it an unusual transaction - a one off?
  • If it was a one off, was it reasonable for the trader to have guessed how to deal with it, or should particular attention have been given knowing it was outside the norm?
  • What internal checks did the trader have to prevent errors made in the accounting system being transcribed to the VAT return?
  • What checks did the signatory to the VAT return perform before signing?
  • Was this repetition of an error that had been assessed / covered in writing before? This applies particularly in a period of grace and nil net tax situations, when the concessions have not been applied.