≡ Menu

Half of all VAT late filing penalties overturned on appeal

A leading accountancy firm says that almost half the automatic VAT late filing penalties levied by HMRC last year were overturned upon review, and that the taxman’s systems are automatically weighted against businesses – with fines being imposed regardless of circumstances.

In another story which again questions the ability of HMRC to manage its internal systems effectively, it has been revealed that just about half of the 17,200 automatic VAT penalties issued in 2013 were subsequently overturned.

HMRC’s internal systems will automatically apply a fine if a VAT return is submitted later than the official deadline (usually one month after the end of a firm’s VAT quarter), so the onus is always on the business owner to appeal the fine and explain the circumstances behind the late submission.

VAT penalty system isn’t working

Accountants UHY Hacker Young say that the system simply isn’t working in its current state.

Partner at the firm, Simon Newark, says that the penalty process starts with the premise that the taxpayer is wrong – “That’s perceived by taxpayers as being unfair, but unfortunately, that’s what the law says.”

However, if one in two fines are subsequently overturned, Newark says that something is going wrong, especially with tougher rules in place in recent years, “so they will only overturn penalties where the taxpayer has an overwhelmingly clear-cut case.”

It would appear that HMRC is rubber-stamping automatic late filing penalties when it comes to borderline cases, where businesses “should be allowed to explain their situation first before they are railroaded into a system of fines and penalties.”

Penalties applied by humans less likely to be overturned

Interestingly, when it comes to appeals, HMRC is far less likely to overturn a penalty when the original fine was presided over by a real human being rather than a computer.

In fact, just a mere 28% of appeals against HMRC officers’ decisions were subsequently overturned, compared to 49% for appeals against computer-generated fines.

Of course, one could also argue that a decision made by a real person may be less likely to be wrong in the first place, but the number or successful appeals against officer-applied penalties still suggests that the system is under-performing.

Fewer business owners prepared to fight penalty decisions

Worryingly, despite the error-rate revealed by this data, the number of businesses which are prepared to spend the time appealing a VAT penalty has declined noticeably over the past few years.

The number of requests to appeal VAT penalties has fallen from just over 37,000 in 2011 to 19,400 in 2013.

Newark says that there is a “breakdown of trust in the system, as businesses see the review process as HMRC ‘nodding through’ its own poor decisions in the hope the business will back down.”

“Unfortunately, many do.”

Top Articles

Do I need an accountant for my limited company?
Find out what a limited company accountant could do for you.

Mortgages for limited company directors and contractors Are you self-employed and looking at getting a mortgage?

How much limited company tax do I have to pay? Find out the latest tax information for limited company owners.

Company Bug Newsletter

Keep up to date with small business news and guides by signing up to the Company Bug newsletter.