Penalties ― VAT wrongdoing ― calculating, assessing and collecting the penalty

Produced by Tolley

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

  • Penalties ― VAT wrongdoing ― calculating, assessing and collecting the penalty
  • What steps must be taken before the penalty is calculated?
  • What steps are required to calculate the PLR?
  • Is it possible to reduce the penalty?
  • Is it an unprompted or prompted disclosure?
  • How is the quality of disclosure determined?
  • Special reduction
  • Interaction with other penalties
  • How is the penalty processed?
  • How is the penalty issued?
  • More...

Penalties ― VAT wrongdoing ― calculating, assessing and collecting the penalty

This guidance note provides an overview of how HMRC will calculate the amount of penalty due if a person becomes liable to one because they have committed a VAT wrongdoing. This note should be read in conjunction with the Penalties ― VAT wrongdoing ― overview and Penalties ― VAT wrongdoing ― behaviour of the taxpayer guidance notes.

What steps must be taken before the penalty is calculated?

Before HMRC can commence with calculating the amount of penalty that will be imposed on the business, it must take the following steps:

  1. ascertain what it believes to be the underlying behaviour that caused the person to commit the wrongdoing. See the Penalties ― VAT wrongdoing ― behaviour of the taxpayer guidance note

  2. determine the applicable penalty period. According to HMRC if a person is not registered for VAT makes an unauthorised issue of an invoice showing or including VAT, the penalty period will be the date of the invoice. A person is legally liable to a separate penalty for each invoice showing or including VAT (CH91300)

  3. calculate the amount of the potential lost revenue (PLR) that the penalty will be based upon

  4. confirm whether it believes the disclosure of the wrongdoing was unprompted or prompted

  5. determine the quality of disclosure made by the business

More information on these steps is provided below.

What steps are required to calculate the PLR?

The penalty for a VAT wrongdoing is based on the VAT or the amount representing VAT shown on the invoice issued by the unauthorised person.

This amount of tax is the PLR for the purposes of calculating the penalty due and the penalty will be calculated by applying an appropriate percentage to the PLR. For a VAT wrongdoing penalty the appropriate penalty percentage will depend upon the behaviour of the person. See the Penalties ― VAT wrongdoing ― behaviour of the taxpayer for information on how HMRC classify the behaviour

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