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HM Revenue and Customs Brief 15/11

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HM Revenue and Customs -Tax Authorities

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Issued: on 6 April 2011

Penalties: change to HMRC's view of the operation of the delayed tax provisions for inaccuracy penalties

Introduction

The purpose of this brief is to explain a change in how HM Revenue & Customs (HMRC) views the operation of the 'delayed tax' provision of the new penalties for inaccuracies, introduced in paragraph 8 of Schedule 24 to the Finance Act 2007.

Who needs to read this?

Customers who have been charged a penalty for an inaccuracy on a return that would have been automatically reversed in a subsequent return, but for a compliance check by HMRC.

Background

Under the 2007 Finance Act, new penalties were introduced for inaccuracies on returns or other documents. Under these penalties, if a return contains an inaccuracy that relates to a timing error which is automatically reversed in a subsequent tax period, the penalty is not calculated on the full amount of tax underpaid in the first period, but on a reduced amount to take account of the timing error.

For example, if someone reclaims 100,000 VAT on a purchase in period 1 when it should have been reclaimed in period 2, they claim 100,000 too much in the first period but 100,000 too little in the second. Any penalty for the overclaim in period 1 is not calculated on the 100,000 but on a reduced amount to take account of the automatic reversal of the inaccuracy in period 2.

Current position

HMRC's approach to date has been that in order for the penalty to be calculated in this way, the customer had to have submitted both the return containing the initial inaccuracy, and the one containing the automatic reversal of the inaccuracy in a later period. This means that in some cases HMRC has charged a penalty on the full amount because they acted to correct the inaccuracy on the first return before the second return could be submitted, thereby preventing the inaccuracy from being reversed.

Revised position

HMRC is changing its approach for cases where HMRC intervened to correct the inaccuracy before the second return was received, preventing the inaccuracy from being reversed. When HMRC are satisfied that, but for their intervention, the inaccuracy would have been automatically corrected in a subsequent return, customers will receive the reduced penalty based on the rules for delayed tax. HMRC will shortly update our guidance to reflect this.

What you should do

If you have been charged a penalty for an inaccuracy on a return and you believe that, had HMRC not intervened before a subsequent return could be submitted, the inaccuracy would have been automatically reversed in a subsequent period, you should contact HMRC to request that the penalty is reviewed. You should refer to this Revenue and Customs Brief when making your request.

Remember this only applies to timing inaccuracies, those that are automatically reversed in a subsequent period after they are made without you having to do anything more. It does not apply to the VAT Error Correction procedure nor to compensating but unrelated inaccuracies.

Further details

For information about how to ask us to review a penalty, please follow the link below.

Complaints & appeals



About the Author

Crown Copyright 2011.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.



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Article Published/Sorted/Amended on Scopulus 2011-04-08 10:11:21 in Tax Articles

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