Issued with a VAT penalty? All may not be lost!

If you have been issued with a penalty for a misdemeanour in your VAT affairs and you think it is unreasonable – it may be possible to successfully challenge its issue.

In a recent Tribunal case (J&W Brown – TC05101) HMRC was criticised for issuing a penalty that was not sufficiently mitigated to take account of the fact that the issue “was one of the merest technicality, a minor administrative hiccup involving minimal culpability, causing no revenue loss and no administrative inconvenience to HMRC”.

In this case, a business had changed legal entity from sole trader to partnership but failed to inform HMRC of the change for nearly two years.  During this time, VAT returns were submitted and paid in full.  HMRC decided to treat this case as late notification of VAT registration and issued a penalty that was partly mitigated but still a material amount for a small business to pay.

The Tribunal judge duly reduced the penalty to a minimal amount and was further critical of HMRC for causing such inconvenience and expense to the business in defending its position.

In our view, there are many cases where it is possible to successfully challenge the issue or degree of a penalty; and hopefully Tribunal cases such as this will both discourage HMRC from issuing unfair penalties and also provide further ammunition in challenging them. The key message must be to challenge penalties in cases where the taxpayer feels that they have any mitigating circumstances.




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