New legislation applies to inaccuracies on returns due for filing on or after 1 April 2009, so if your business is subject to a VAT inspection, it is likely that the new penalty rules will be applied.
Where a return includes a mistake (as opposed to deliberate understatement) the taxpayer is not liable to a penalty if he has taken reasonable care in preparing the return. If a mistake is careless, a significant reduction in penalty can be made if the taxpayer discloses the error to HMRC in full (usually in writing) and pays the extra tax.
The key is HMRC’s interpretation of the words “reasonable care”.
All taxpayers are required by law to keep sufficient records to make a correct and complete tax return. However, for smaller businesses, the quality of those records may be poor and in consequence errors may arise in the preparation of accounts and tax return for the business. While there are penalties for failure to keep adequate records, it is more likely that if the record keeping failure has contributed to the inaccuracy in the return, the Revenue would view this as a failure to take adequate care and levy a penalty for the inaccuracy accordingly.
If you have any doubts regarding the adequacy of your business records now would be a good time to look at your procedures – otherwise visits from the VAT office may result in penalties being levied that could otherwise have been avoided.
Please call if you would like to discuss this issue.
Sue Stephens
Tax Manager
