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NEW PENALTY REGIME |
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See VM ¶4145 The first quarterly VAT returns due after the new penalties for inaccuracies on returns took effect on 1 April 2009 will have been submitted by now. The new regime is based on compliance-based behaviour, in which an “inaccuracy” on a return may fall into the following categories: 1. one which has arisen despite the taxpayer having taken “reasonable care”; 2. one which has arisen as a result of failure to take “reasonable care” (penalty of up to 30% of tax lost); 3. a deliberate understatement or overclaim (penalty of up to 70%); and 4. an aggravated deliberate understatement/overclaim, i.e. one where the taxpayer has concealed his actions (penalty of up to 100%). Inaccuracies falling within category 1 will not attract a penalty; those falling into categories 2–4 attract penalties of increasing severity, based on a percentage of the tax lost. HRMC state that the definition of “reasonable care” varies according to the person, their circumstances and their abilities. In their view taking reasonable care includes: - keeping accurate and up-to-date records to ensure returns are correct; and - checking the correct position when there is something you don’t understand. It is important to remember that even where an agent such as an accountant is employed to prepare returns, it is still the responsibility of the taxpayer to ensure that the return produced on his behalf is accurate. Disclosure See VM ¶4147 HMRC can mitigate the penalty according to the type of inaccuracy, the way in which the inaccuracy is disclosed to them, and the “quality” of the disclosure. However, those familiar with the previous misdeclaration VAT penalty need to be aware that the old defence of “reasonable excuse” is now replaced by the “reasonable care” provision above. Correcting an error through the VAT return is not a disclosure for the purposes of the new penalty if the error concerned is due to a failure to take reasonable care. An important point to remember is that voluntary disclosure of an error (which previously meant that the taxpayer escaped a penalty) will no longer guarantee that a penalty will not be imposed. In fact, repeated voluntary disclosures, especially of the same or similar errors, are likely to be seen as an indicator that reasonable care is not being taken. However, the benefit of disclosing an error to HMRC is that the risk of a penalty actually being applied should be reduced. A new concept to VAT is that of suspended penalties, which may be subsequently applied or cancelled, depending on the behaviour of the taxpayer (¶4148). |
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Tax Memo 2009-2010 will be fully revised and updated to reflect law and practice as at the date of Royal Assent to the Finance Act 2009, and include commentary on the: - New benchmark system for employee subsistence expenses - Restriction of tax relief available on pension contributions made by higher earners and the special annual allowance - Abolition of the commissioners’ system for tax cases and introduction of the new tribunals - Implementation of the new harmonised system for tax penalties |
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Tax Memo 2009-2010 |
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Benefits: Book and online / 100% reader-friendly / Regularly updated |
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AVAILABLE IN OCTOBER |
