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HMRC internal manual

VAT Civil Penalties

Misdeclaration penalty: Discretion, reasonable excuse, and mitigation: Grounds for mitigation

Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after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

Comparison with reasonable excuse

When considering mitigation it is essential to look at all the facts of the case. This means that like reasonable excuse, complexity, unforeseen events and many other circumstances can provide a reason for mitigation. Unlike reasonable excuse, you are able to mitigate where there is a degree of reasonableness.

There is also a technical difference between reasonable excuse and mitigation. If you inhibit a misdeclaration penalty (MP) because you consider there is a reasonable excuse, the assessed tax ceases to be penalty liable. Mitigation however, reduces the penalty but leaves the assessed tax as penalty liable. Cases where you can award 100% mitigation will be extremely rare, but if they do arise the distinction between mitigation and reasonable excuse will be very fine and should be considered carefully.

Behaviour following the error

Whereas reasonable excuse focuses on the behaviour which led to the error, it may in some cases be appropriate to recognise a difference between the trader whose system remains chaotic or inefficient and the trader who has demonstrated a degree of reasonableness by addressing an inadequate system. When looking at these cases you should always consider the reasons why no voluntary disclosure was made before the error was assessed.

Co-operation in establishing arrears may give you a reason for mitigation of MP. However, unlike mitigation in civil fraud cases, honesty is always assumed in MP cases.