Posted by Tax Innovations on 23 Apr 2012

It seems that HMRC are applying the letter of the law and charging penalties in cases where there is a late notification of a change of legal entity.

The law says that a person who becomes liable to register for VAT by virtue of taking over a business as a going concern must notify HMRC of the fact within thirty days of the transfer date. Failure to do so renders the person liable to a penalty unless there is reasonable excuse. HMRC’s current policy seems to be to charge a penalty even where all returns and payments have been made on time.

Strictly, HMRC are able to calculate the ‘Potential Lost Tax’ (PLT) as being the VAT due from the date notification was required up to the date notification was made. The maximum penalty is 30% although mitigation can reduce this to nil.

We believe that HMRC have conceded and withdrawn the penalties where these have been challenged. If you receive a penalty as a result of a change of legal entity, please contact us so that we can take the matter up with HMRC on your behalf.