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HMRC internal manual

VAT Civil Penalties

Misdeclaration penalty: Calculation and notification of a misdeclaration penalty: Double jeopardy

Please note: VAT Misdeclaration Penalty has been replaced by the Schedule 24 inaccuracy penalty for all accounting periods where the return period commences on or after 01/04/2008 and the due date is on or after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

An error large enough to breach the objective tests for a misdecalaration penalty (MP) can count as

  • the breach causing the issue of a penalty liability notice (PLN), or
  • the first breach in the warning period after a PLN has been issued.

However, because of the rules of double jeopardy a period cannot be assessed for both MP and repeated misdeclaration MP(R) penalties. If an error breaches the objective tests for both MP and MP(R) penalties the MP will always take precedence.

Where the D2211 reports both MP and MP(R) for the same accounting period for the same error MP should always be assessed.

In addition a trader cannot be assessed for MP or MP(R) and be liable to a civil evasion penalty or prosecution for the same period. If you suspect fraud you should contact the Civil Investigation Team before raising an assessment, see VCP10300. If it is decided to pursue a fraud case and issue an assessment to recover the tax and interest, you must set the MP inhibit signal on the VAT 641 for each under-declared line of each period for which you have decided to pursue the case even if it is obvious that the amounts involved would not lead to MP.

If you do not do this the arrears would be held on the trader’s records as “liable to MP”, and further assessments on the periods concerned would be added to this “liable” amount, which could cause the trader to breach the MP tests. The interest inhibit signal should not be set as double jeopardy does not apply.

If it is later decided to discontinue a fraud investigation before a civil evasion penalty is assessed or prosecution is notified, you can remove any MP inhibit signal by inputting a VAT 643 and changing the inhibit signal from “1” to “0”. The system will then re-examine the trader’s liability to MP and advise any penalty that may be due to the local office.

You should not discount the need to pursue a fraud or civil evasion case simply because a trader is likely to receive MP. You must consider whether a reasonable excuse or mitigation exists and be able to justify the imposition of MP at Tribunal.