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VAT Errors and Penalties: What Triggers Them and How to Reduce the Impact

Shared from Tax Insider: VAT Errors and Penalties: What Triggers Them and How to Reduce the Impact
By Andrew Needham, August 2025

Andrew Needham looks at how to minimise any penalties due if a business is assessed by HM Revenue and Customs.  

Any under-declaration of VAT could potentially attract a penalty. The level of penalty broadly depends on whether an error was careless, deliberate but not concealed, or deliberate and concealed.  

The standard penalty for a careless error is 30% of the potential lost revenue, increasing to 70% if the error is deliberate but not concealed, and 100% if the error is deliberate and concealed.  

How to reduce the level of penalty 

There are reductions from the standard penalties for disclosure, which are relatively well known. The level of reduction broadly depends on whether the disclosure is ‘prompted’ or ‘unprompted’. 

For example, the standard penalty for a careless error is 30%, but if the error is

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