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ACCA Strategic Professional · Advanced Taxation (UK) · Legitimate tax planning measures

Olu Ltd submitted a VAT return that understated tax by £20,000 because of carelessness. HMRC has not yet found the error. Olu Ltd tells HMRC voluntarily and gives full help. Under the standard penalties for errors table, what is the minimum penalty?

The minimum penalty is nil. For careless errors the minimum is 0% where disclosure is unprompted, as here because Olu Ltd told HMRC before discovery. The 15% minimum applies only to prompted disclosure and the 30% figure is the maximum.

  1. A£0, because the disclosure is unprompted and the behaviour is carelessCorrect
  2. B£3,000, being 15% of the tax understated
  3. C£6,000, being the 30% maximum penalty
  4. D£4,000, being 20% for unprompted deliberate behaviour

Explanation

For careless behaviour the minimum penalty is 0% where disclosure is unprompted and 15% where prompted. Olu Ltd disclosed before HMRC discovered the error, so it is unprompted and the minimum is nil. The £3,000 figure wrongly applies the prompted minimum of 15%.

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