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Its Not what You Said But what You Did Not Say That Really Matters



Sadly Steve Allen died in July 2011. His wife Leah would like to thank all those who know Steve and helped contribute to his success. She has recommends Steve's clients and anyone who is interested in this article topic to contact Rob McCann from “The Vat people” on (tel) 0161 477 6600 . Please make reference to Steve Allen.

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Issued October 2010

During August, HMRC put a brief announcement on their website  urging businesses to adjust current VAT returns if the error was under the Voluntary Disclosure limits. The reason given for this was that the Error Correction Team was currently taking six to eight weeks to process voluntary disclosures. At first glance, the announcement seems helpful, but a few words of caution are needed about the important issues that are not mentioned. (

Although adjusting a current return means HMRC will not charge interest on the amount owed to them (whereas interest can be charged on a Voluntary Disclosure even if the amount is under the limits for adjusting the current return), correcting an error in this way is not a ‘disclosure’ for the purposes of the new penalty regime. Whilst HMRC suggest that most small errors will not be ‘careless’, and therefore fall outside the new regime, there is no set definition of ‘taking reasonable care’, so there is clearly a risk that a future visiting officer could audit the adjusted return and disagree that the error was not careless. If the error is held to be careless, the taxpayer will not be entitled to maximum mitigation, as it will not have made a ‘full and unprompted disclosure’ to HMRC at the time of discovery. The one extenuating fact for the taxpayer will be the website announcement itself, as it clearly recommends correction of the error through the current returns. However, unless a copy of the announcement is printed off and retained by the taxpayer in support of the return adjustment, it seems unlikely that either the taxpayer or HMRC will be able to produce a copy of it in an argument that could ensue up to 4 years later! The offending webpage will have long since ceased to exist.

Where the error is an amount owed to a taxpayer, penalty should not be an issue (unless the claim is wrong, and the taxpayer has been ‘careless’ in making it). However, adjusting the current return is likely to mean that no interest is paid by HMRC, even if the adjustment was needed as a result of an HMRC error. This is because taxpayers that have corrected the return may well forget to claim the interest in writing, as is required. Once the interest rules are harmonised by the provisions of FA 2009, so that interest will be payable by HMRC on all overpayments of VAT, regardless of whether an official error or taxpayer error, this may become more important. It may be that the benefit of getting the money earlier by adjusting the current return is worth more than the amount of interest, especially now, when the rates are so low. However, it is best to have all the facts before deciding what to do.

About the Author

STEVE ALLEN is the Managing Director of VAT Advisers Ltd, and has more than 19 years’ experience in VAT. Beginning with HM Customs & Excise in 1990, Steve spent 8 years in the Department in a variety of roles such as VAT Insolvency and VAT investigation in Liverpool, and latterly as a VAT Inspector at Wigan VAT Office.

Steve left the Department in 1998 to become a consultant with Latham Crossley and Davies, before joining Ernst & Young. In 2001, Steve formed VAT Solutions (UK) Ltd with a co-Director, and built up a successful practice over 8 years before setting up VAT Advisers Ltd in September 2009.

Steve advises accountants and individual businesses on all aspects of VAT, but in particular, issues concerned with land and property, charities, cross-border trading, and arrears of VAT.

VAT Advisers Ltd,
1 Dundonald Avenue
Stockton Heath
(t) 01925 212244
(f) 01925 212255
(m) 07810 433927

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Article Published/Sorted/Amended on Scopulus 2010-11-10 13:42:13 in Tax Articles

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