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HMRC have published Revenue & Customs Brief 15/11 to explain a change in how they view the operation of the delayed tax provision of the new penalties for inaccuracies, introduced in Finance Act 2007, Sch 24 para 8.
Under the penalties, if a return contains an inaccuracy that relates to a timing error that is automatically reversed in a subsequent tax period, the penalty is not calculated on the full amount of tax underpaid in the first period but on a reduced amount to take account of the timing error.
The Revenue's approach had been that for the penalty to be calculated, the taxpayer had to have submitted the return containing the initial inaccuracy along with the one containing the automatic reversal of the inaccuracy in a later period.
This meant that in some cases the department charged a penalty on the full amount because it acted to correct the inaccuracy on the first return before the second return could be submitted.
This is to change so that when HMRC are satisfied that, but for their intervention, the inaccuracy would have been automatically corrected in a subsequent return, the taxpayer will receive the reduced penalty based on the rules for delayed tax.
The department will update its guidance shortly.
Taxpayers who have been charged a penalty for an inaccuracy on a return and but who believe that, had HMRC not intervened before a subsequent return could be submitted, the inaccuracy would have been automatically reversed in a subsequent period, should contact the Revenue to request that the penalty is reviewed, referring to RCB15/11.
This only applies to timing inaccuracies, those that are automatically reversed in a subsequent period after they are made without the taxpayer having to do anything more. It applies to neither the VAT Error Correction procedure nor to compensating but unrelated inaccuracies.
