That’s never a penalty!

I have been both shocked and surprised by HMRC’s latest approach to VAT penalties for deliberate error.

“But I don’t make any deliberate errors” you may think. OK, but in HMRC’s eyes you may be wrong because HMRC seem to have created their own definition of what is deliberate.

In their drive to increase revenues they now are regularly seeking deliberate error penalties of up to 70% of the tax underpaid where the taxpayer was not even aware of the error but in their view should have been. Not only is there the financial penalty but there is also the distinct possibility that the taxpayer will be publicly named and shamed.

We have recently heard of an instance where a business undertook an unusual transaction but unfortunately dealt with the VAT incorrectly. HMRC’s view was that because it was an unusual transaction the business should have taken advice. They did not and therefore their error was deliberate.

On the other hand we have heard of another case where a company dealt with many similar transactions but probably through carelessness got one wrong. HMRC view was that as the company knew the correct procedure any error must have been deliberate.

This rewriting of the encyclopaedia and Heads I Win, Tails You Lose approach seems entirely unjust and does HMRC no favours at all in the public eye. The moral of the story though must be to take professional advice whenever there is any uncertainty.