 Penalties and the new de minimis threshold
There is a quirk for taxpayers planning to take advantage of the new, substantially higher thresholds for correcting errors without disclosure. Currently, only errors of up to £2,000 can be corrected on the next VAT return without a separate letter of disclosure to HMRC.
From 1 July 2008, businesses are able to correct errors discovered in any one accounting period in the next VAT return up to a maximum of £10,000 or 1% of turnover (but not more than £50K). The substantially higher limits mean that this relief is likely to be used more often and (obviously) for significantly higher errors. However, the quirk is that if the error is one which would give rise to a penalty, it must still be separately disclosed. So a business will have to decide whether the error was one for which it is liable to a penalty before using the new non-disclosure threshold: if it is, it must be separately disclosed. Errors which give rise to penalties (under the new penalties regime – largely not in force for VAT until end of 2008) are those which are due to the client’s failure to take reasonable care.
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