Penalties confirmed for mistakes by foreign firms in VAT claims
4 Aug 08
It has been made clear that HMRC's new penalty system applying to errors in tax returns and other documents also applies to Eighth and 13th Directive refund claims
These refund claims are applicable respectively to EU and non-EU companies which incur VAT in the UK in the course of their business but which are not VAT-registered here. They can reclaim UK VAT if they meet certain conditions, by submitting a refund claim by 30 June (for Eighth Directive claims covering VAT incurred in the previous calendar year ) or by 31 December (for 13th Directive claims covering the previous 12 months 1 July to 30 June).
The penalties apply to claim forms covering the period from 1 July 2008 for 13th Directive claims and from 1 January 2009 for Eighth Directive claims if an error is made in the claim which results in the amount of the claim being overstated. The penalty will depend on why the mistake was made, but no penalty will be charged if the business can show that it took reasonable care in compiling the claim.
There is no fixed definition of “reasonable care” but HMRC lists examples of reasonable care that include keeping correctly completed invoices and receipts to support the claim, evidence of any checks that businesses have made to make sure that the VAT they are claiming is recoverable, and telling HMRC promptly if the business subsequently thinks it has made a mistake.