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HMRC internal manual

VAT Civil Penalties

HM Revenue & Customs
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Misdeclaration penalty: Discretion, reasonable excuse, and mitigation: Self supply charge - development leases

Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after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

From 1 January 1992, people who construct a new non-qualifying building on leasehold land, or substantially reconstruct or enlarge an existing non-qualifying building on leasehold land, and who then become liable to a self supply, must notify their landlord of this fact.

The landlord must then account for tax at the standard rate on any rent they charge in respect of the land if they are, or become liable to be, registered for VAT. Further details of this are in Notice 742A: Property development.

However, if tenants liable to pay the self-supply charge do not notify their landlord of this fact, the landlord will not know that the rents charged have changed from exempt to standard-rated.

Even though there may have been a breakdown in communication between landlord and tenant, the landlord is still liable for any tax due on the rents.

If you discover that a landlord has not accounted for output tax on ground rents etc. charged to a person who has made a self-supply in relation to the land, an assessment for the VAT and interest must be issued to the landlord. However, the fact that the tenant did not notify the landlord of the self-supply charge is a reasonable excuse for the purpose of penalties, and unless there is evidence of collusion or manipulation a misdeclaration penalty (MP) is to be inhibited.