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HMRC internal manual

VAT Civil Penalties

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Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after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

Section 70 of the VAT Act 1994 specifically excludes certain factors from being reasons for mitigation.

Lack of funds

The difficulty of defining lack of funds in a business context means that this is a consideration more appropriate to the enforcement of a penalty than to the setting of a penalty. Mitigation must not be used as a way of reducing arrears.

No Revenue loss

The misdeclaration penalty is imposed for lack of care. The fact that an error results in no revenue loss may be entirely accidental and would mean HMRC would have to ignore the independence of VAT registered entities.

Trader has acted in good faith

It is always assumed when considering a misdeclaration penalty that the trader has acted in good faith, therefore the penalty rate starts at 15% compared to 100% where dishonesty is involved.