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HMRC internal manual

VAT Civil Penalties

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HM Revenue & Customs
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Insurance Premium Tax: Calculation and notification of a penalty: Failure to submit a return and pay tax by the due date

Please note: penalties under Schedule 7 Finance Act 1994 for failure to notify liability to register have been replaced by the Failure to Notify penalty introduced by Schedule 41 Finance Act 2008. The Failure to Notify penalty applies where an obligation to notify liability to register for IPT occurs on or after 01/04/2010. Penalties under Schedule 7 Finance Act 1994 will continue to apply where an obligation to notify occurs before 01/04/2010.

Please see the Compliance Handbook CH70000 for more information about the Failure to Notify penalty.

Please note: penalties under the Finance Act 1994 for failure to provide information and failure to produce records have now been replaced by penalties under Schedule 36 Finance Act 2008 where HMRC have requested information or documents on or after 01 /04/2010. If HMRC requested information or documents before 01/04/2010 the Finance Act 1994 penalties will continue to apply.

Please the Compliance Handbook CH20000 for more information about information and inspection powers.

Traders are required to submit a return and pay the tax due within one month of the end of each accounting period (ie by the “due date”). If they fail to pay the tax by the due date, they will be in default and will be liable to either a penalty warning letter or a penalty assessment.

If there have been no previous defaults within the last 12 months, they will be liable to a penalty warning letter. However, if they have already been issued with a penalty warning letter within the last 12 months, they will be liable to a penalty assessment.

They will then continue to be liable to further penalties each time they default, until a period of 12 months has elapsed without any further default. If after the 12 months without default has elapsed, a further default is recorded, penalty action will start again with a penalty warning letter.

A trader will also be in default if they fail to submit their return by the due date. However, as a matter of policy, we will not normally issue a penalty if the tax has been received on time, but the return is late.

Undertakings have been given to the Insurance business sector that no IPT registered trader will receive a penalty for late payment without first receiving a written warning.

Penalty Rate

  • 5% of the tax assessed or, if greater, £250, and
  • a daily rate penalty of £20 per day for every relevant day that the tax remains unpaid.

Issuing a penalty 

If a trader has failed to pay the tax by the due date, the VAT Central Unit (VCU) will send you either a penalty warning letter or penalty calculation whichever is applicable.

You will need to consider whether it should be issued to the trader, considering

If you decide that a penalty should be issued you should send it to the trader without delay. If however, you decide that a penalty should not be issued you will need to tell the VCU as soon as possible giving your reasons. They will then inhibit the penalty action for the period.

Once the initial penalty has been issued the VCU will automatically issue the £20 a day penalty to the trader for every day the tax remains unpaid.

If the initial penalty amount has been based on a centrally issued assessment but it is later decided that the actual tax liability is different from that previously assessed, it may be necessary to either increase or reduce the penalty by using Form IPT33 or IPT32. The VCU will issue the necessary documentation.

If you become aware of a potential default but you consider that in the exceptional circumstances no penalty action should be taken, you should notify the VCU immediately. They will then set an inhibit to remove the period from any possible penalty action.

As a matter of policy we would not normally issue a penalty for failure to submit a return. However if you consider a penalty is appropriate you should contact the Central Policy Tax Administration Advice TAA) team for advice, see VCP11621. If a penalty is to be issued you will need to complete form IPT40 using the Penalty Code 03. Send the form to the VCU (This content has been withheld because of exemptions in the Freedom of Information Act 2000) . The computer will automatically send a penalty assessment letter to the trader.