There are changes to VAT penalties and interest for accounting periods starting on or after 1 January 2023 for:

• VAT returns that are submitted late

• VAT which is paid late

Clients of agents and advisers may be charged a penalty if their return or other tax document was inaccurate and tax has been:

• unpaid

• understated

• over-claimed

• under-assessed

They can face a penalty if they do not tell HMRC that an assessment is too low. The guidance which was initially published on 1 January 2014 and last updated on 13 January 2023 provides an overview of penalties with links to more detailed information.

The guidance reiterates the message that agents and advisers merely act on behalf of a client and the responsibility for returns, calculations and payments lies with the client (the tax payer). The authorisation as an agent allows HMRC to deal with the agent or adviser on the tax payer’s behalf, but any liability for penalties for late returns, late payments or any errors on paperwork legally remain with the client (tax payer).

Every individual or business is expected to keep records that allow them to give a complete and accurate return. HMRC also expects them to check with their agent, or HMRC, to confirm the correct position, if they are not sure.

However, ‘reasonable care’ is different for each tax payer’s circumstances and abilities. For example, a tax payer with relatively straightforward tax affairs may only need a simple system of record keeping that is regularly updated. A large business with complex tax affairs is expected to have a more sophisticated system that is well-managed. There is no statutory definition of what constitutes reasonable care. Whether or not a person had acted reasonably is an objective test and "s a matter to be considered in the light of all the circumstances of the particular case.

You may appeal against a penalty if you have a reasonable excuse, for example for your return or payment being late.

A reasonable excuse is something that stopped you meeting a tax obligation that you took reasonable care to meet, for example:

• your partner or another close relative died shortly before the tax return or payment deadline

• you had an unexpected stay in hospital that prevented you from dealing with your tax affairs

• you had a serious or life-threatening illness

• your computer or software failed just before or while you were preparing your online return

• service issues with HMRC's online services

• a fire, flood or theft prevented you from completing your tax return

• postal delays that you could not have predicted

• delays related to a disability or mental illness you have

• you were unaware of or misunderstood your legal obligation

• you relied on someone else to send your return, and they did not

• HMRC may consider COVID-19 as a reasonable excuse for missing some tax obligations (such as payments or filing dates) – this needs to be explored in detail.

You must send your return or payment as soon as possible after your reasonable excuse is resolved - further delays may be held against you when appealing against a penalty or an assessment.

Generally speaking, the following may not constitute a reasonable excuse:

The following will not be accepted as a reasonable excuse:

• your cheque bounced or payment failed because you did not have enough money

• you found the HMRC online system too difficult to use

• you did not get a reminder from HMRC

• you made a mistake on your tax return

When facing a penalty it is imperative that you take prompt steps to challenge the penalty if you believe that you have a reasonable excuse – there are strict time limits when challenging HMRC penalties and failing to adhere to those without a reasonable excuse can result in you being time barred.

Hammad Baig can assist in challenging HMRC penalties and VAT assessments.

HAMMAD BAIG © 2023

BARRISTER

33 BEDFORD ROW

Hammad practices, international trade law, tax law and commercial litigation with a specific interest in VAT and Customs and Excise Law.

Further articles on topics relating to Hammad's practice areas, can be read under his Insights, and on Hammad’s blog. Should you wish to instruct Hammad, then please do not hesitate to contact his clerk Mark Byrne. 

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.