What penalties can HMRC charge for VAT errors?
Answered 11 March 2026
Here is a comprehensive answer on the penalties HMRC can charge for VAT errors:
What the Law Says
The primary penalty regime for VAT errors is found in Schedule 24, Finance Act 2007 (introduced by s.97 FA 2007). The key rules are:
When a penalty arises A penalty is payable where a person gives HMRC a VAT return (or other document) containing an inaccuracy that amounts to or leads to:
- an understatement of the liability to VAT, or
- a false or inflated claim to repayment of VAT
and the inaccuracy was careless or deliberate.
These rules apply where the inaccuracy is in a return with a due date on or after 1 April 2009, relating to a VAT period beginning on or after 1 April 2008.
No penalty arises where the inaccuracy was made despite taking reasonable care.
Penalty percentages (% of Potential Lost Revenue)
The penalty is calculated as a percentage of the "potential lost revenue" — broadly, the additional VAT due as a result of correcting the inaccuracy:
| Behaviour | Standard (maximum) penalty |
|---|---|
| Careless | 30% |
| Deliberate but not concealed | 70% |
| Deliberate and concealed | 100% |
A "deliberate and concealed" inaccuracy arises where the inaccuracy is deliberate and arrangements are made to conceal it (e.g. by submitting false evidence in support of an inaccurate figure).
Reductions for disclosure
Penalties can be reduced based on the type (unprompted vs. prompted) and quality of disclosure (telling HMRC, helping to quantify the error, and giving access to records). The minimum penalties after reduction are:
| Behaviour | Unprompted disclosure | Prompted disclosure |
|---|---|---|
| Careless | Nil | 15% |
| Deliberate but not concealed | 30% | 45% |
| Deliberate and concealed | 40% | 50% |
A disclosure is unprompted if made when the person has no reason to believe HMRC has discovered, or is about to discover, the inaccuracy.
HMRC Guidance / Practice
Types of error that attract penalties HMRC will charge a penalty if an error is due to:
- a lack of reasonable care
- deliberate action (e.g. intentionally sending incorrect information)
- deliberate and concealed action (e.g. intentionally sending incorrect information and taking steps to hide it)
The more serious the reason, the higher the maximum penalty.
Avoiding a penalty through early disclosure To avoid a penalty, a taxpayer must disclose full details of any errors before HMRC begins enquiries into their VAT affairs. Enquiries normally begin when HMRC makes an appointment to inspect records.
Careless errors — possibility of nil penalty Where there has been an unprompted disclosure of a careless inaccuracy, and the person actively participates in providing HMRC with information and access to records, the penalty may be reduced to nil.
Suspension of penalties HMRC may suspend a penalty for a careless inaccuracy (but not for a deliberate inaccuracy) if suspension conditions can be set that would help the person avoid a further penalty. Suspension is unlikely to be appropriate where the person incurs a penalty during an existing suspension period, or where the penalty arises from tax avoidance.
Interest Separately from penalties, HMRC may also charge interest on underdeclared VAT. For accounting periods starting on or after 1 January 2023, interest is governed by Finance Act 2009. All error notifications requiring an assessment may be subject to a default interest charge, regardless of the amount involved.
Citation sources
amount (including nil) as they think proper”. However, in reducing the penalty HMRC and/or the Tribunal are precluded (by s 70(3) – (5) VATA) from taking into account “the insufficiency of the funds available to any person for paying any VAT due or for paying the amount of the penalty.” Schedule 24 Finance Act 2007 130. Schedule 24 to the Finance Act 2007 makes provision for penalties in errors in certain documents sent to HMRC (see s 97(1) of the Finance Act 2007). 131. Paragraph 1 of schedule
If we find underdeclared VAT on your returns, we’ll assess for the tax due and may charge you interest. To avoid a penalty, you must disclose the full details of any errors before we begin to make enquiries into your VAT affairs. Enquiries normally begin when we make an appointment to inspect your records. We’ll accept disclosures for penalty purposes after this point, unless we have reason to believe that you already knew about the errors, and only disclosed them because of our enquiries. You s
This guidance deals with interest matters in respect of prescribed accounting periods starting on or before 31 December 2022. Interest matters with effect from 01 January 2023 are dealt with under Finance Act 2009. Please see Compliance Handbook page CH140000 onwards to find the new interest rules guidance. The majority of error corrections will not be careless, that is, due to a failure to take reasonable care. Indeed, the existence of a process to identify and correct errors, provided it is ma
A disclosure will either be prompted or unprompted and will be dependent on the specific facts in each case. A disclosure is unprompted if it is made at a time when the person making the disclosure has no reason to believe that HMRC have discovered, or are about to discover, the failure being disclosed. Otherwise, it is a prompted disclosure. If the disclosure was made as a result of any contact with any HMRC officer (not just an Economic Crime - Supervision officer), then this is a prompted dis
Penalties can be charged if there are errors on returns or other documents which: understate the tax misrepresent the tax liability Penalties can apply if your client does not tell HMRC if an assessment is too low. This type of penalty is known as an ‘inaccuracy penalty’ and applies to the following taxes and duties: Betting and Gaming duties Capital Gains Tax the Construction Industry Scheme Corporation Tax Environmental taxes excise duties Income Tax Inheritance Tax Insurance Premium Tax Natio
This guidance deals with interest matters in respect of prescribed accounting periods starting on or before 31 December 2022. Interest matters with effect from 01 January 2023 are dealt with under Finance Act 2009. Please see Compliance Handbook page CH140000 onwards to find the new interest rules guidance. Section 97 and Schedule 24 Finance Act 2007 introduced a new penalty regime for inaccuracies in returns or other documents, see CH80000 onwards. The penalties apply where the inaccuracy is co
A disclosure is made by informing an officer of Revenue and Customs of the inaccuracy, assisting HMRC in quantifying an inaccuracy, and allowing access to relevant records to ensure that it is fully corrected, PARA33(4). The reduction in penalty in respect of disclosure cannot reduce the penalty below certain minimum levels, as follows. For careless inaccuracy, the minimum level of penalty is 15% of the notional tax for a prompted disclosure, and nil for an unprompted disclosure. The distinction
You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details. Only penalties under Schedule 24 FA 2007 can be considered for suspension, see CH81011. CH83142 explains that, by law, you cannot suspend a penalty for a deliberate inaccuracy an error in a person’s document attributable to another person a failure to take reasonable steps to notify an under-assessment. Where the person does not agree that their behaviour was careless beca
We’ve withdrawn our previous policy of not charging interest on the notification of errors on VAT Returns with a value under £2,000. As a consequence all error notifications (formerly known as ‘voluntary disclosures’) requiring an assessment may be subject to a default interest charge. This is regardless of the amount involved. But, net VAT errors below the limit described in Notice 700/45 may continue to be corrected on a VAT Return without incurring a charge to interest. In addition, interest