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HMRC internal manual

VAT Civil Penalties

HM Revenue & Customs
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Misdeclaration penalty: Calculation and notification of a misdeclaration penalty: Rates of penalty and penalty base

Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after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

Traders become liable to a misdeclaration penalty when they

  • submit a return or a series of returns which understate their tax liability.
  • over-claim their entitlement to a repayment.
  • accept a centrally issued assessment that is too low and do not notify HMRC within 30 days of its issue of their true liability for the period.

Objective tests are used to see if the period is susceptible to a penalty,

  • for large misdeclaration errors, see VCP10731 
  • for repeated misdeclaration errors, see VCP10741 

The rate of penalty is currently 15%.

Supplementary assessments which identify additional tax due attract a penalty at the same rate as the original assessment.

The previous rates were

1 April 1990 to 19 March 1991 30%
20 March 1991 to 10 March 1992 20%
11 March 1992 to current date 15%

Once you have determined liability to a misdeclaration penalty you must compare the error against the penalty base.

The penalty base is the figure against which errors are compared to determine if a penalty should be triggered. Misdeclarations are tested against a penalty base known as Gross Amount of Tax (GAT) or True Amount of Tax (TAT).

GAT is the aggregate of the output tax and the input tax which should have been declared for a VAT period.

TAT is the net tax amount due for a VAT period where the trader has not submitted a VAT return

Note: GAT and TAT are not static amounts but change every time an error is discovered, amended or withdrawn.

For guidance on determining the amount of penalty for

  • large errors in a single VAT accounting period, see VCP10730 
  • repeated errors, see VCP10740.