The First Tier Tribunal has heard the case of Russell Francis Interiors relating to a penalty imposed regarding the failure to take reasonable care in completing A VAT return.
Russell Francis Interiors was in the furniture business and held a small property portfolio, which the taxpayer had opted to tax. In May 2009 the owner exchanged contracts for the purchase of a commercial warehouse and mistakenly believed that the date of exchange of contracts was the tax point for the transaction and incorrectly claimed the VAT Input Tax in the quarter 06/09. For Capital Gains Tax purpses the date of sale is indeed the date of the contract, provided that it is unconditional. For VAT purposes though the tax point is normally the date of delivery (or payment if earlier) and this means that the relevant date is the date of completion.
Consequently, even though there was no loss of tax to H M Revenue and Customs, VAT was recovered three months earlier that it should have been. HMRC checked the return and in line with its new policy of imposing swinging penalties to support the beleagured Treasury charged a penalty of 15% of the tax claimed.
The taxpayer appealed, and the Tribunal decided that although the transaction was one off, unusually large, with no loss of tax, decided a penalty still chargeable and determined that a penalty of 7 ½ % of the tax was due.
More care than ever is needed in filing tax returns with HMRC if you don't want to be their next victim.
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