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From 1 April 2010, HMRC will apply new wrongdoing penalties relating to VAT and Excise Duty, where a person:

• issues an invoice that includes VAT which the person is not entitled to charge;
• handles goods on which Excise Duty has not been paid or deferred;
• uses a product in a way that means more Excise Duty should have been paid; or
• supplies a product at a lower rate of Excise Duty knowing that it will be used in a way that means a higher rate of Excise Duty should be paid.

"Handling goods" means acquiring the goods, carrying, removing, depositing or keeping them, or selling them. An example of this is buying cigarettes abroad and selling them in the UK. Cigarettes can only be
brought into the UK, without paying UK Excise Duty, if they are for your own use.

HMRC will not charge a penalty where a "reasonable excuse" exists. They state that such a reasonable excuse might be an unforeseeable and exceptional event that led to the wrongdoing. Examples include the death of a partner or close relative, or serious illness of the person, partner or close relative.

If the wrongdoing is deliberate, HMRC cannot consider a reasonable excuse.

The penalty will be a percentage of the potential lost revenue, such as the amount of VAT on an
unauthorised invoice. The percentage used will depend on whether the wrongdoing was:

• deliberate and concealed;
• deliberate but not concealed, or
• not deliberate.

The penalty may then be reduced to take account of whether, and to what extent, the indivudual concerned tried to make HMRC aware of the wrongdoing. The reduction depends on whether the disclosure is unprompted or prompted, and the quality of the disclosure.

A disclosure is unprompted if HMRC are informed at a time when you have no reason to believe that they have discovered or are about to discover the wrongdoing.

 It is possible to appeal to the tribunal against a penalty.

You can find more information on penalties for errors at www.hmrc.gov.uk/about/new-penalties