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The taxpayers were in the furniture business and had a small portfolio of property. In May 2009 they exchanged contracts on the purchase of a commercial warehouse which required them to pay a deposit of £25 000 plus VAT.
They believed incorrectly that the date of the exchange of contracts was the relevant tax point for VAT purposes and claimed all the VAT on the transaction in the quarter to June 2009.
HMRC amended the return disallowing the claim and imposed a penalty of £5 062 in respect of an error in the taxpayer’s VAT return claiming the mistake was careless (FA 2007 Sch 24).
The department gave the taxpayers the maximum discount available for their prompted disclosure.
The taxpayers appealed on the ground that the penalty was too harsh...
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