Exceeding the VAT threshold – you forgot to tell HMRC



HMRC should not let taxpayers think that “cover up” costs less than “own up”…

Recently a client  – quite accidentally  – didn’t notify HMRC when their income rose above the VAT threshold (currently £81,000) until about six months later.
The general rule is that you have to tell HMRC within 30 days from the end of the month in which your taxable supplies in the last 12 months exceeded the threshold.  Failure to do so will result in penalties.

When the assessment came through, on top of the outstanding VAT liability, it showed a penalty.  The penalty is reduced depending on these factors:
-    ”Telling us about it”
-    ”Helping us understand it”
-    ”Giving us access to records”.

We think HMRC is well able to distinguish between the situations where
1)  a taxpayer has been knowingly careless and then “owns up” merely to minimise the cost, and
2)  where a taxpayer has made an unwitting mistake.

For example, a trader not telling HMRC about a substantial source of income for several years, and then telling HMRC, is unlikely to be genuine.

In our case, the client did the honest thing and told HMRC, unfortunately 6 months late.  The problem was that the penalty was 25% again of the VAT due.

We’re not suggesting that businesses “cover up”.  We advise you to comply with the law and if you don’t, don’t come to us.  But what effect does this kind of treatment have on taxpayers?  This case is under appeal, but the message HMRC has sent out is that if you do the honest thing and tell HMRC, you won’t get much credit for it.

As taxpayers, we all lose out if some other person, on hearing how HMRC treated our honest taxpayer, reaches the conclusion that perhaps “cover up” will cost less than “own up”. 

July 2014 – Update

Following our appeal and putting our client’s case for the second time, HMRC  reduced the penalty to 3%.  This is a satisfactory outcome.

This case shows that provided taxpayers and their accountants are prepared to stand their ground (and have a genuine case) then fair treatment can be expected – eventually.  It shows also a tendency for HMRC start off in a somewhat bullying manner, to ignore the information given to them at first, and only to consider the client’s case when that same information is presented again, persistently.  While the outcome was satisfactory in this case, how many others – perhaps hesitant to make their case – would not get fair treatment?


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