Failure to Comply with VAT Registration

Dance with Mr D Ltd attended a First Tier Tribunal after it was found that the business had not registered for VAT for a period of two years. The business specialises in theatrical productions on a global scale. When the appellant changed their accountants they were informed that the business should have been registered for VAT two years before. VAT registration was then made which was then followed by a penalty notice which was issued by the HMRC in line with the Finance Act 2008.

An appeal was lodged by the appellant citing special circumstances. In the appeal, the appellant relied on a previous case from 2013 with Hillis where the legal team successfully argued that special circumstances were applicable. The case resulted in the late registration penalty being reduced to nil. The appellant for Dance with Mr D Ltd stated that there was no intention to avoid registering for VAT, it was simply a case of a genuine error.

However, the HMRC stated that it was up to the tax payer to make sure that they were fully compliant and aware of the regulations surrounding VAT registration. They also stated that it was very surprising given the turnover of the company that there were no arrangements in place. The HMRC also drew the appellant???s attention to the Hillis case where the delay in making arrangements for VAT was only one month beyond the twelve month timescale for registration in comparison with their own failure to register which was a 28 month delay and the revenue was considerably higher.

The First Tier Tribunal concluded that the appellant did not provide sufficient evidence to justify the delay. The Tribunal determined that the fact that the appellant had not deliberately delayed VAT registration was not classed as being a special circumstance. The HMRC penalty was reduced to 12% rather than the minimum 10% because it was demonstrated that the appellant had delayed correspondence. The HMRC accepted the explanation provided by the appellant and further reduced the penalty to 11%.

Final Thoughts

In summary, this case goes to show that the onus is very much on the tax payer to make sure that they understand their liabilities when it comes to VAT and they cannot rely on the fact that their business activities did not allow them sufficient time to make these arrangements. Furthermore, it is also not sufficient to rely on the failure of an advisor to claim special circumstances. The Tax payer is personally accountable for making sure that they are compliant, particularly if their business is showing a rapid period of growth.

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