Undeclared Duty And VAT Assessments – What You Need to Do if you Receive a Penalty

If HMRC suspects that you or your company have failed to pay the amount of Duty or VAT required by law, or you have made errors on your returns, you may be issued with a fine known as a “wrongdoing penalty”. But what exactly is this penalty, and what reasons might HMRC give for handing you one?

What is a Wrongdoing Penalty and Why Might I Receive One?

You will not receive a penalty straight away. The first step in the assessment notification process is usually the receipt of a notice of assessment of tax. This process may end in a penalty if HMRC uncovers evidence of wrongdoing. As soon as you receive any correspondence relating to a VAT assessment, you should contact HMRC as soon as possible to enquire into the issues they may have found with payments you have made. You can then discuss ways to rectify the problem and avoid duty or VAT penalties if possible.

You may have been made the subject of a VAT assessment if HMRC has reason to believe that you or your company:

• Are mistaken regarding the amount of VAT or duty for which you believe you are liable
• You have made a late application to register for VAT
• You have submitted a tax return that contains errors or omissions
• Have issued an invoice that includes VAT which you are not entitled to charge

You duty payments may also be investigated if you have:

• Handled goods on which Excise Duty has not been paid or deferred
• Used a product in a way that means more Excise Duty should have been paid
• Supplied a product at a lower rate of Excise Duty knowing that it will be used in a way that means a higher rate of Excise Duty should be paid

How Are VAT Penalties Calculated?

If you are handed a penalty as the result of a VAT assessment, it will be calculated based on the nature of your wrongdoing or mistake.

If the results of an investigation give HMRC reason to believe that the wrongdoing you have committed was both “deliberate” and “concealed”, you may face a penalty of up to 100% of the revenue lost to the Crown. If it is considered that the wrongdoing was deliberate but not concealed, you may need to pay up to 70%, and if is believed to have been non-deliberate or accidental, you may be charged up to 30%.

What Happens if You Receive a Wrongdoing Penalty?

If you or your company are served with penalties as the result of a VAT assessment, it is advisable that you first seek legal advice. After this, you can either make contact with HMRC to pay any VAT penalties involved or, if you believe that the penalty is incorrect, you can launch an appeal.

As specialist tax fraud solicitors, we can assist and advise you on the appeals process of such penalties and it is imperative that you seek advice quickly after being informed of any penalties as there are strict deadlines in doing so. We can provide you with representation to seek internal HMRC reviews of the penalty decision, appeals to the First Tier Tax Tribunal and also seeking Judicial Reviews of HMRC’s decision.