HMRC provides Clarity on Penalty Regime for Deferred Value Added Tax

HMRC has confirmed that the penalty regime related to non-payment of Value Added Tax (VAT) due to the deferred VAT scheme is now in place. The said VAT scheme was introduced at the beginning of the COVID-19 pandemic. 

A financial penalty may be levied by HMRC if it is found that you did not take any step in relating to paying your deferred VAT, or failed to make the VAT payment by the deadline of June 30, 2021.

The legal framework in relation to the aforementioned penalty is specified in the section 99 of the Finance Act 2021.

The financial penalty to be charged will be calculated on the basis of the unpaid amount of deferred VAT. As per the penalty regime, the penalty will be levied at 5 per cent of the VAT deferred that is outstanding at the date of the assessment of the penalty.

However, negotiations with HMRC with regard to tax and penalty payments is possible, especially in light of the impact of the COVID-19 impact on businesses and their operations. The recent guidance issued by the tax authority mentions that businesses can make an arrangement to pay either by joining the new payment scheme in connection to the deferred VAT or by contacting HMRC to agree extra help to pay.

Once, businesses receive a penalty assessment then they would have 30 days to make settle the outstanding VAT amount.

Appeal against a penalty

There are many options for appeal, including citing ‘reasonable excuse’ for non-payment or late payment, and businesses can also request for a statutory review of the penalty assessment. This means asking the tax decision to be reviewed by someone that was not involved in the decision-making process of the original decision.