VAT News

HMRC VAT Penalties – Can I get a VAT Penalty Reduced?


There are different levels of penalty that HMRC may levy in respect of a VAT error and this depends on the seriousness of the offence which gives rise to an inaccuracy. The three categories are:

  • ‘Careless’;
  • ‘Deliberate but not concealed’; or
  • ‘Deliberate and concealed’.

‘Careless’ action is defined within the VAT legislation as “failure to take reasonable care”, and if an error falls within this category, the penalty is likely to be measured between 0% and 30% of the potential lost revenue i.e. minimum penalty of 0%, maximum penalty of 30%.

If a situation does arise where you find you owe HMRC some underdeclared VAT then the first influencing factor will be whether the careless error is notified to HMRC through a prompted disclosure (i.e. triggered by HMRC), or an unprompted disclosure (the taxpayer notifies HMRC). If prompted, the penalty will likely range from 15% to 30%. If unprompted, there may be scope to reduce the penalty right down to 0%. The quality of the disclosure will help HMRC determine the level of penalty.

We can also look at whether the penalty could qualify to be suspended – where HMRC can set appropriate conditions to remove the risk of the error being repeated.

An important point to note is that it is now recognised that the time of the error also plays a significant part in determining the level of penalty reduction.

HMRC guidance makes reference to the amount of time that has elapsed since the error first occurred, stating that if the error was made more than 3 years ago then the minimum penalty should be increased by 10%. For example, an unprompted careless error that occurred more than 3 years ago cannot be reduced from 30% to 0% by the quality of the disclosure and will instead be a minimum of 10% due to its age.

The guidance (found here) acknowledges that this treatment may not be fair and appropriate for one-off errors, in which case full reduction may be available.

All of this re-enforces the need to maintain a good level of VAT compliance in any organisations – it’s not just about the value of the VAT owed but the penalty that can be levied AND the amount of management time lost in dealing with HMRC’s enquiries on the matter.

That’s why Centurion are here for those days when VAT gets complicated and you need some expert VAT support to call upon.

If you would like to learn more about the VAT penalty regime or discuss this specific point in detail, please contact a member of the Centurion VAT team at



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