One day short

Calculation of penalties for late paid VAT

The taxpayer used software to prepare its quarterly VAT returns and adopted the default setting for the return dates which stopped the period one day short and moved it to the beginning of the next one. In effect the final day’s inputs and outputs were put into the next quarter’s return. This was said to help the company’s cashflow. This happened on 15 returns; nine produced an underpayment of VAT but the rest an overpayment. When HMRC discovered what was happening it told the taxpayer to correct the reporting and imposed penalties of £149 186.

The taxpayer accepted the ruling but disputed the penalties. HMRC said a penalty was incurred for each shift of output tax (FA 2007 Sch 24 para 5) but the taxpayer argued the delayed tax rules applied (Sch 24 para 8). This would result in a...