Overview of the three penalties introduced from 1 April 2010

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Overview of the three penalties introduced from 1 April 2010
  • Background
  • What are the penalties?
  • Indirect taxes included in the penalty regime
  • Who is affected by the penalty regime?
  • Penalties that can be applied
  • Penalty notice assessments
  • Reasonable care
  • Mitigating the penalty
  • Suspended penalties
  • Appealing against a penalty


This note provides an overview of the three penalties introduced by HMRC with effect from 1 April 2010.

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HMRC is aware that most businesses take care to declare and pay the right amount of tax on time. HMRC uses penalties to discourage businesses from being careless with regard to their tax affairs and to ensure the businesses who fail to act in a reasonable manner suffer a financial cost for failure to administer their tax affairs accurately.

HMRC was aware that penalty regimes applied historically across indirect and direct taxes were wide-ranging, cumbersome and difficult to understand. As a result of an extensive consultation exercise, HMRC introduced three different penalties with effect from 1 April 2010 (although some actually came into effect in 2009) that replaced the penalties in operation before that date.

For the penalty regime prior to 1 April 2010, see the Penalties regime prior to 1 April 2010 guidance note.

HMRC has also introduced a number of other penalties since 2010 to deal with VAT avoidance arrangements and businesses who are involved in fraudulent activities. An overview of the penalties that can be imposed by HMRC can be found in the Penalties ― summary of penalties that can be applied guidance note and Flowchart ― overview of the current VAT penalty regimes.

What are the penalties?
Penalties for inaccuracies

The purpose of the penalty for inaccuracies is to ensure that people are penalised for not paying the correct amount of tax at the correct time because they have not taken care with regard to the documentation that is submitted to HMRC. A penalty will be imposed if a person does not take reasonable care, they are careless or deliberately:

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