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HMRC internal manual

VAT Civil Penalties

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Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after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

There is no formula for relating given circumstances to a particular degree of mitigation but the following points will help

  • Is there a reasonable excuse? If a reasonable excuse exists, there is no need to go on to consider mitigation. As you go through the process of deciding on reasonable excuse, you will begin to form some opinion about the degree of reasonableness shown in the case.
  • Are there any factors which indicate a degree of reasonableness? It may be that the only factors present are excluded by law. Or there may simply be no degree of reasonableness at all. Any officer who has read the case in order to decide on reasonable excuse will have formed some views about the degree of reasonableness shown. But remember it is not enough simply for there to be some reasonableness. It must be enough to persuade you that the full application of penalty is not appropriate. To make this decision you will need to decide on the strength of the factors involved in a particular case.
  • Are there very strong grounds for mitigation? This might be obvious from the logic of the trader’s argument or by similarity to other cases you have worked. You will be able to answer yes to this if you have had difficulty rejecting the reasonable excuse.

    • If very strong reasons exist you should consider mitigation of 75% to 100%.
    • Is the case for mitigation only marginal? If you have found it easy to reject a reasonable excuse or if the degree of reasonableness is quite small, the case for mitigation is likely to be marginal and you should consider mitigation of 10% to 30%. (Remember, to reduce the penalty by less than 10% is likely to be seen as trivial and an invitation to appeal to a VAT Tribunal).
  • Cases in between: In between the extremes of “very strong” and “marginal” cases there is a class of cases which is defined mainly by not belonging in the other 2 categories. These cases may be characterised as those where you found it easy both to reject the reasonable excuse and to recognise factors which indicate a degree of reasonableness. You should consider mitigation of 35% to 70% for such cases.