New VAT penalty regime
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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A single new penalty regime for incorrect returns for income tax, corporation
tax, PAYE, NIC and VAT will take effect in 2009. This measure is part of an
initiative to standardise and simplify the existing penalty regime right across
the taxes following the amalgamation of the Inland Revenue and Customs & Excise.
The new rules will be based on both the amount of tax understated and the
behaviour that gives rise to the understatement with no penalties being applied
for “mistakes” but, at the other end of the scale, higher penalties for
“deliberate action with concealment”. There is also a new concept of suspended
Legislation is to be introduced in the Finance Bill 2007 to provide for a
single new penalty regime for incorrect returns The penalty is based on the
amount of tax understated/that would have been lost, the nature and behaviour
giving rise to the understatement and the extent of disclosure by the taxpayer.
It is expected that that the effective date will be such so as to include
return periods commencing after 31 March 2008 where the return is filed after 31
The new regime will replace current rules and there will be:
• No penalty where the taxpayer makes a mistake;
• Moderate penalties for failures to take reasonable care;
• Higher penalties for deliberate action; and
• Still higher penalties for deliberate action with concealment .
Each penalty can be substantially reduced where the taxpayer makes a
disclosure, more so where this is unprompted, and there will be the right of
appeal against penalty decisions. A new concept of suspended penalties will also
be introduced. The VATman will be able to impose a penalty, but not enforce for
a period of time, and if the taxpayer makes no further errors the penalty will
lapse. This will, no doubt, encourage business to be compliant.
It would be advisable for business to show any visiting VATman that every
care has been taken in getting the returns correct so if an error is discovered
no penalty is imposed. In many cases the VATman fails to understand the details
of a business and so assess incorrectly or may impose a penalty because he
thinks reasonable care has not been taken. Some large businesses have decided to
put together a ‘pack’ explaining what the business does and how the accounting
system operates to help the VATman understand the business and see that they
have taken reasonable care in preparing the returns.
Taxpayers may find it easier to understand a single penalty regime applicable
across the different taxes
About the Author
Steve Allen is the
Director of VAT Solutions (UK) Ltd, an established independent firm of Chartered
Tax Advisers, formed by Andrew Needham and Steve Allen. Both not only are
respected tax advisers, but have worked for both Customs & Excise and one of the
top four accountancy firms for many years. This mean that their team know both
sides of the equation and are truly experts in this field.
The company has a cross-section of clients from multi-national companies
through to medium-sized and numerous smaller regional firms of accountants and
solicitors. They produce a regular publication 'VAT Voice', which can be
downloaded directly from their website
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Article Published/Sorted/Amended on Scopulus 2007-06-19 21:18:52 in Tax Articles