Disclosure of errors during an enquiry

[Kitty Kat]

Hi all

A client has had a letter from HMRC asking for information about their VAT calculations going back to 2008. It seems like a random enquiry and is broad in scope, so I assume fact finding. Nothing to hide, so it should all be smooth (aside from the odd niggle perhaps).

However the client has mentioned that their last 2 returns have been incorrect (they have just realised) which will obviously be spotted by HMRC on provision of the answers to their questions. When the client replies, should they be drawing extra attention to this in order to make a prompted disclosure? Or is the provision of the info requested by HMRC a disclosure in itself?

My first VAT enquiry (eek) so I want to get things right. As I say, nothing strenuous, in fact the client is doing all the work. But given a penalty is inevitable, I'd rather it was 15% than 30% (it is very much careless).

Thank you all

[section 44]

Draw attention to/disclose the error.

At worst you are wasting your time by drawing their attention to an error that they should become aware of. At best, it may help mitigate penalties.

[Kitty Kat]

Thank you, that is exactly what I was thinking. If the client thinks I am being over-cautious I will (hopefully) get to take credit for the 15% reduction in the penalty later

[section 44]

Another way of looking at, if HMRC do not spot the errors then the taxpayer may be liable by keeping quiet about known errors.

[Kitty Kat]

Another way of looking at, if HMRC do not spot the errors then the taxpayer may be liable by keeping quiet about known errors.

Just to play devil's advocate, and purely from curiousity, could the client be accused of hiding an underpayment of VAT if they send all the workings to HMRC showing how they did it wrong (but not drawing attention to it)?

The error is the FRS percentage used, so the fact it stays the same either side of the 4th of January means it will stand out like a sore thumb.

[Generix]

Another way of looking at, if HMRC do not spot the errors then the taxpayer may be liable by keeping quiet about known errors.

Just to play devil's advocate, and purely from curiousity, could the client be accused of hiding an underpayment of VAT if they send all the workings to HMRC showing how they did it wrong (but not drawing attention to it)?

The error is the FRS percentage used, so the fact it stays the same either side of the 4th of January means it will stand out like a sore thumb.

Are you suggesting more than 30% penalty? If so I would say HIGHLY unlikely.

I forget with FRS, can a vol disc be made by means adj of subsequent return? If so I suggest you state you have already picked up this error and plan to adjust next return to seem extra dilligent

I hope you weren't responsible for reviewing these returns in the first place?!

[Kitty Kat]

Another way of looking at, if HMRC do not spot the errors then the taxpayer may be liable by keeping quiet about known errors.

Just to play devil's advocate, and purely from curiousity, could the client be accused of hiding an underpayment of VAT if they send all the workings to HMRC showing how they did it wrong (but not drawing attention to it)?

The error is the FRS percentage used, so the fact it stays the same either side of the 4th of January means it will stand out like a sore thumb.

Are you suggesting more than 30% penalty? If so I would say HIGHLY unlikely.

I forget with FRS, can a vol disc be made by means adj of subsequent return? If so I suggest you state you have already picked up this error and plan to adjust next return to seem extra dilligent

I hope you weren't responsible for reviewing these returns in the first place?!

No, this is all on the client, they do their own VAT (which is a relief of sorts). I have told the client to make HMRC fully aware of it, I'm not sure myself whether they can adjust on the next return under FRS...

Haven't seen a penalty in practice yet, but I was assuming it would be 30% reduced to 15% in my case, as it would be a disclosed careless mistake.