Disproportionate penalty

Failure to notify a change in legal entity

JB ran his business as a sole trader and was registered for VAT. He took on his son as a business partner in November 2012. This was a transfer of the business as a going concern but JB failed to tell HMRC of the change in legal entity until July 2014. He continued to submit VAT returns and pay tax as a sole trader during this period.

HMRC treated the notification in 2014 as a late registration by the partnership of more than 12 months. It issued a penalty based on 18% of the tax due by the partnership in this period. The penalty was mitigated by a further 70% to reflect the fact that the VAT returns and tax for the period(s) in question had been submitted by the sole trader registration so there was no loss of tax but that...