Suspension of careless error VAT penalty

The taxpayer (LDL) bought a new car in July 2019 and claimed input tax of £9 052 on its August 2019 VAT  return. HMRC disallowed the claim on the basis that there was nothing to stop the vehicle from being made available for private purposes and issued an assessment.

A 15% careless error penalty was issued for £1 358 which the company disputed. Even if the penalty was correct LDL claimed that HMRC should use its powers to suspend rather than enforce the penalty. HMRC said that suspension was not possible because ‘the error had been a one-off and unlikely to recur’.

If HMRC discovers a careless error on a past return that produces an underpayment of VAT the officer can issue a penalty of between 15% and 30% of the tax because it is a prompted disclosure (FA 2007 Sch 24). The minimum penalty of...