Frequently Asked VAT questions
What’s a VAT Assessment?
If, as a result of a VAT inspection, the inspector finds that you have underpaid VAT, they will send you a VAT Assessment indicating the value of the underpayment and usually indicating how and when the underpayment arose. They will also indicate that you may also be subject to a penalty. If you accept the assessment (not something you should do without taking advice from VAT professionals), HMRC will decide what level of penalty they want to charge you on top of the underpaid VAT.
What’s a VAT Penalty Notice?
The VAT Penalty Notice is issued by HMRC after they have issued a VAT Assessment of underpaid tax. Depending on HMRC’s judgement of the seriousness of the error you made in declaring the wrong amount of VAT to be paid on your VAT Return, the penalty can be anything from 15% to 100% of the underpayment.
What should I do if I receive a penalty assessment?
If you accept that you have underpaid or over-claimed any VAT on returns submitted by you and are prepared to accept the level of penalty charged by HMRC, then both the original VAT assessment and the penalty should be paid within 30 days. You can, of course, ask HMRC to accept payment over a period of time, but interest will be added to the outstanding amount until it is cleared. With the right assistance and advice, however, it may be possible to negotiate more favourable arrangements.
However, if you do not agree with either the original VAT assessment and/or the level of penalty applied, you must apply for a review by HMRC of their decision to issue the assessment and/or penalty, and the level of penalty. If the assessment and penalty are upheld, the next stage is to submit an appeal to the Tax Tribunal at which stage professional advice should be sought. You can, of course, appeal directly to the Tax Tribunal, although it is advisable to seek a review of the assessment and/or penalty by HMRC first.
Will HMRC publicise the details of an assessment or penalty?
HMRC can publish the names and details of individuals and companies who have been penalised for deliberate tax ‘defaults’ i.e. errors or failures, where the VAT involved exceeds £25,000. The aim is to encourage people to bring their tax affairs up to date without resorting to such measures, but failing that, HMRC will publicly ‘name and shame’ those involved. This also acts as a deterrent to others. The exceptions are cases where the default involves only late returns or a failure to pay VAT on time.