HM Revenue and Customs Brief 15/11
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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
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.
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.
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.
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
For information about how to ask us to review a penalty,
please follow the link below.
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