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HMRC Reference:Notice 700/41 December 2010

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HMRC Reference:Notice 700/41 (December 2010)

Late registration penalty

1.Introduction


1.1 Scope of this notice

This notice covers the late registration penalty for VAT obligations to notify a liability to be registered before 1 April 2010.

This penalty has been replaced by the new failure to notify penalty for obligations to notify liability to be registered on or after 1 April 2010. Please see fact sheet CC/FS 11 for details of the new penalty. You can access the factsheet at New Compliance checks - factsheets

2.What is this notice about?

This notice explains:

  • when and how we may penalise you if you fail to register for VAT at the right time, and
  • your rights of appeal against the penalty.

Before you read this notice you should read Notice 700/1 Should I be registered for VAT? which will help you decide whether you have to register.

This notice has been restructured to improve readability, but the technical content has not changed from the April 1995 edition.

3.Calculating and notifying penalties

3.1 When might I face a penalty?

We may penalise you if you fail to notify us at the correct time that you should have registered for VAT.

The time limits for registration are explained in Notice 700/1 Should I be registered for VAT?

The amount of the penalty will depend on the amount of VAT due and how late you were in telling us that you should have registered.

3.2 How much will the penalty be?

The penalty is worked out as a percentage of the VAT due (output tax less input tax), from the date when you should have registered to the date when we either received your notification, or became fully aware that you were required to be registered. The rate of penalty depends on how late you were in registering:

If you registered


Then the penalty rate will be


not more than 9 months late


5%


more than 9 months but not more than - 18 months late


10%


more than 18 months late.


15%


There is a minimum penalty of 50.

3.3 How will I be notified of the penalty?

We will notify you of the amount in writing. We will also explain how to appeal against the penalty if you think you shouldn't be penalised or the amount of penalty is wrong.

4.Reasonable excuse and mitigation

4.1 What is meant by reasonable excuse?

If we, or an independent tribunal, agree that there is a reasonable excuse for the late registration, you will not be liable to a penalty.

There is no legal definition of reasonable excuse but we will look closely at the circumstances of each case and the conduct that led to the late registration. If you can show that your conduct was that of a conscientious business person who accepted the need to comply with VAT requirements, then there may be a reasonable excuse.

The following guidelines show circumstances where there might be a reasonable excuse for failing to register on time.

  • Compassionate circumstances: where you are totally responsible for running a small business and you or a member of your immediate family was seriously ill or recovering from such an illness at the time that notification was required.
  • Transfer of a business as a going concern: where you have taken over a business as a going concern with little or no break in trading and you have sent returns and paid tax on time under the registration of the previous owner.
  • Doubt about liability of supplies: where there is written evidence of an enquiry about the liability of supplies and the liability has remained in doubt.
  • Uncertainty about employment status: where there are genuine doubts as to whether you are self employed, or where you can produce correspondence with HM Revenue & Customs about these doubts.

Your claim of reasonable excuse will not necessarily be accepted just because it fits into one of these categories. Any decision to accept reasonable excuse will be based on all the circumstances of your individual case.

Genuine mistakes, honesty and acting in good faith are not accepted as reasonable excuses for penalty purposes. And the law provides specifically that you do not have a reasonable excuse if:

  • you cannot afford to pay, or
  • you relied on some other person to perform any task for you.

If the circumstances of your case fall short of reasonable excuse, there may still be grounds to mitigate (reduce) the penalty (paragraph 3.2).

4.2 Mitigation

A penalty can be reduced if there are mitigating circumstances that fall short of a reasonable excuse.

Like reasonable excuse, the law does not define the grounds for mitigation but it specifically excludes:

  • your lack of funds to pay any tax or penalty due
  • the fact that little or no tax has been lost, and
  • the fact that you acted in good faith.

When we consider mitigation we will consider all the facts which led to the late registration. The amount of mitigation allowed will depend on the circumstances of the case. We can mitigate the penalty to nil but such cases are likely to be exceptional.

5.Appeals

5.1 What if I disagree with the penalty?

If you disagree with either your liability to penalty or the amount of the penalty you have the statutory right to an independent review. You should request a review within 30 days of the date of our letter notifying you of the amount of the penalty.

If you:

  • think that you have a reasonable excuse for failing to register on time (see paragraph 3.1), or
  • consider that you have been penalised at too high a percentage, or
  • think that there are mitigating circumstances which warrant reduction of the penalty (see paragraph 3.2).

5.2 Is there anything else I can do?

You can appeal to an independent tribunal within 30 days of the date of our letter notifying you of the amount of the penalty or, if you have opted for a review, within 30 days of our letter telling you of the conclusions of our review.

Information on reviews and appeals is available in our fact sheet, HMRC 1, at www.hmrc.gov.uk or by phoning 0845 900 0404. You can find out more about tribunals on the Tribunals Service website or you can phone them on 0845 223 8080.

The tribunal can consider whether there is a reasonable excuse and can also increase as well as decrease any amount of mitigation that we have allowed.


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Crown Copyright 2010.

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 2011-01-19 09:06:52 in Tax Articles

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