VAT errors – HMRC collects £153m last year as issues 38% more of its heaviest fines
HMRC is increasingly levying its heaviest penalties on VAT returns errors, with a 38% increase in the serious penalties issued for what it terms ‘deliberate’ errors in the last year (March 31 2024), says chartered accountants and business advisors Lubbock Fine.
‘Deliberate’ VAT errors refer to cases where HMRC believes the business made an active decision to illegally underpay VAT. This could be either by not declaring the correct VAT on sales – or overclaiming VAT on costs. In those cases businesses can be fined between 20-100% of the VAT owed.
The number of these serious fines has increased to 2,781 in the past year from 2,011 in the previous year. In total, HMRC handed out £153 million in fines across 46,376 penalties in the past year as it cracks down on errors that are deemed ‘deliberate’.
Jas Dhillon, VAT partner at Lubbock Fine, says: “HMRC is getting tougher with its VAT fines and issuing a growing number of its most serious penalties. It’s difficult not to conclude that it’s a concerted effort to bring in more cash.”
“HMRC appears to be taking a tougher approach to VAT penalties, aiming to categorise more inaccuracies as ‘deliberate’. Classifying errors as ‘innocent’ would result in lower penalties, or even no penalty at all – which of course means a smaller take for the taxman.”
How businesses can challenge HMRC’s investigations
For the most serious cases – those HMRC terms ‘deliberate and concealed’ – penalties can range between 30% and 100% of the tax due. These are cases where HMRC believes the taxpayer has deliberately or intentionally tried to avoid paying their taxes, often through false or amended documents. The number of these penalties rose 4% in the past year, from 1,924 to 1,994.
Graham Caddock, tax investigations director at Lubbock Fine, says that the complexity of VAT regulations often leads to businesses making genuine mistakes.
For example, common ‘innocent’ errors can often include incorrect invoice names, dates – or submitting invoices that aren’t subject to VAT. Whilst these errors are rarely intentional, without the right advice and approach, the resulting penalties can often be severe.
Says Graham Caddock: “The sharp rise in higher penalties indicates that HMRC is hardening its attitude toward VAT compliance. Businesses should make sure they seek professional advice to avoid VAT errors or mistakes – and to fight their corner if HMRC tries to unfairly levy a harsher penalty than is due”
“Unfortunately, many businesses may feel pressured into accepting penalties that they could potentially challenge.”
Lubbock Fine says that to achieve the lower end of the penalty range, taxpayers must make an unprompted disclosure to HMRC and fully cooperate during any resulting tax enquiry.
Says Jas Dhillon: “An experienced tax advisor, however, can often influence HMRC’s decision on whether an error is classified as careless or deliberate – especially important now as HMRC appears keen to argue that the inaccuracy is caused by deliberate behaviour rather than through carelessness”.
“In a lot of cases we have challenged HMRC’s categorisation of the behaviour that has caused the inaccuracy in the first place, which can often result in no penalty being charged.”
“For example, we have managed to persuade HMRC that the inaccuracy, such as incorrect claims relating to invoice/tax point dates was merely an innocent error made despite the taxpayer taking reasonable care (and thus not done deliberately). “