When Doing Nothing Becomes “Deliberate”: Why Professional VAT Advice Matters

HM Revenue & Customs has always had powers to charge penalties where VAT returns are incorrect. What has become clearer in recent tribunal decisions is how easily a situation can move from “careless” to “deliberate” behaviour.

In the recent case of Kog v Revenue and Customs, the Tribunal considered whether a director’s failure to properly address a known VAT issue amounted to deliberate conduct. The issue related to the VAT option to tax on a property, a technical but crucial area of VAT law.

The director had been alerted to a potential problem but did not take further steps to clarify or resolve it. The Tribunal found that simply ignoring a known risk can amount to deliberate behaviour. In other words, inaction is not neutral. If you are aware of a potential VAT issue and choose not to investigate it, that choice can significantly increase penalty exposure.

Why this matters for your business

VAT law is complex. Property transactions, imports, partial exemption, and Making Tax Digital compliance all contain technical rules that interact in ways that are not always obvious.

Under current penalty rules introduced by HMRC, late returns can trigger penalty points and fixed financial penalties. However, where VAT has been underpaid, behaviour-based penalties apply. These can be significantly higher if the behaviour is deemed deliberate rather than careless.

The difference is not simply financial. A finding of deliberate behaviour can:

• Increase the percentage penalty charged

• Extend HMRC’s assessment window

• In some cases, lead to personal liability notices for directors

  
  

This is not an area where assumptions or informal advice are sufficient.

Common risk areas we see

Certain areas repeatedly create problems for businesses:

• Option to tax on property: Whether an option has been validly made, notified and applied correctly

• Import VAT and postponed VAT accounting: Understanding when VAT is payable and how it should be reclaimed

• Partial exemption: Correctly restricting input tax where there is mixed taxable and exempt income

• Making Tax Digital: Ensuring digital records and submissions comply with HMRC requirements

Each of these requires careful review of facts, documentation and legislation.

Why using a qualified professional protects you

A qualified accountant or tax adviser does more than complete a VAT return. They:

• Identify risk areas before submission

• Document technical positions taken

• Challenge assumptions

• Keep up to date with case law and HMRC guidance

• Provide an audit trail showing that reasonable care has been taken

  
  

The key phrase in penalty legislation is “reasonable care”. Demonstrating that you sought professional advice and acted on it can be critical in reducing penalties if an error later comes to light.

At TCW Accounting & Training Solutions, we approach VAT compliance with structured review processes, clear documentation and up to date technical knowledge. Our aim is not simply to file on time, but to ensure that the position you take is defensible.

VAT is rarely straightforward, particularly where property, imports or complex transactions are involved. The cost of professional advice is small compared to the potential cost of penalties, interest and extended investigations.

If you would like a review of your VAT position or are unsure about a particular transaction, speak to us before submitting your next return. Taking advice early is always safer than defending a position later.