The Cost of Carelessness
A recent tribunal ruling has sent a clear message to UK businesses: when it comes to VAT compliance, carelessness can be costly. The FTT ruling highlights the critical importance of maintaining robust VAT accounting practices, and the consequences of failing to meet statutory obligations.
The case centred on a dispute between a UK-based company and HMRC regarding VAT assessments and penalties. Ultimately the taxpayer had not kept the required records, even after HMRC had advised of the requirements following the initial visit. HMRC then alleged that the company had failed to submit accurate VAT returns over multiple periods, resulting in a significant underpayment. The taxpayer argued that the discrepancies were due to accounting errors and not deliberate evasion. However, the Tribunal found that the company had not exercised reasonable care in its VAT submissions.
Despite the absence of fraudulent intent, the lack of internal controls and failure to rectify known issues led the Tribunal to uphold HMRC’s assessments.
Key Takeaways
Reasonable care matters – the Tribunal reinforced that businesses must take proactive steps to ensure VAT compliance. Ignorance or poor bookkeeping is not a defence.
Digital records are not a silver bullet – the company relied on accounting software but failed to reconcile figures properly. Automation must be paired with oversight.
For finance teams, accountants, and business owners, this case is a timely reminder that VAT compliance is not just about filing returns - it’s about accuracy, accountability, and internal governance. With HMRC increasingly using data analytics to identify discrepancies, the margin for error is shrinking.
What You Can Do?
Review your VAT processes regularly
Ensure reconciliation between accounting software and VAT returns
Train staff on VAT rules and reporting obligations
Seek professional advice when in doubt
