Tx notes fa22 Final

June 2023 to March 2024 exams
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8. Penalties and Interest 
8.1. Failure to notify liability for registration or change in the nature of supplies by persons 
exempted from registration 
There will be a standard penalty based on a percentage of the VAT lost during the period from when 
the notification should have been made until it is actually made.
The actual penalty payable is linked to the taxpayers behaviour.
(a)
There will be no penalty where the taxpayer has a reasonable excuse for the failure to notify
(b)
There will be a penalty of 30% of the tax unpaid where there is non-deliberate failure to notify
(c)
There will be a penalty of 70% of the tax unpaid where there is deliberate failure to notify
(d)
There will be a penalty of 100% of the tax unpaid where there is deliberate failure to notify with 
concealment
However a penalty will be substantially reduced where a taxpayer make a disclosure, especially 
when this is unprompted by HMRC.
See “Standard Penalties for Errors” in Rates and Allowances information provided in the exam.
8.2. Errors in a VAT return 
A trader that makes an error in a VAT return that results in the underpayment of VAT can be subject 
to a standard penalty for submission of an incorrect return and penalty interest. There are three 
di
ff
erent situations:
(a)
Net errors of less than a de-minimis can be voluntarily disclosed by a trader. Correction is 
made by simply entering the errors on the next VAT return. There maybe a penalty for 
submission of an incorrect return, but no interest charged.
(b)
Net errors of more than the de-minimis can be voluntarily disclosed by a trader. In this case the 
trader must disclose the errors separately to HMRC. Penalty interest will be charged, and there 
may be a penalty for submission of an incorrect return. 
(c)
Errors may be discovered as a result of a control visit. Both a penalty for submission of an 
incorrect return and penalty interest can be charged.
(d)
The de-minimus level is the greater of:
‣
£10,000 and
‣
1% 
×
turnover (subject to on upper limit of £50,000)

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