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HMRC internal manual

VAT Civil Penalties

Misdeclaration penalty: Discretion, reasonable excuse, and mitigation: Nil net tax

Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after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 nil net tax concession announced at the 1991 Budget normally applies to all visits after 20 March 1991. It is not retrospective and it should not be overridden without reference to the Central Policy Tax Administration & Advice Team, see VCP10721.

Claims that a nil net tax situation exists between two separate VAT registrations are to be refused because:

  • misdeclaration penalty (MP) provisions under Section 63(1) of the VAT Act 1994 are only concerned with the position of an individual taxpayer. For example S63(1)(a) refers to a return which understates “a person’s liability to VAT or overstates his entitlement to a VAT credit…”
  • this would undermine the staged structure of VAT
  • inequities would arise if penalties were not imposed for this type of error. For example retailers who do business with the public would be disadvantaged in comparison to those who do business primarily further up the VAT chain.