Finance Act 1985

14 Serious misdeclaration or neglect resulting in understatements or overclaims. U.K.

(1) In any case where, for a prescribed accounting period beginning after the day appointed under subsection (8) below,—

(a) a return is made which understates a person’s liability to tax or overstates his entitlement to a payment under section 14(5) of the principal Act, or

(b) an assessment is made which understates a person’s liability to tax and, at the end of the period of thirty days beginning on the date of the assessment, he has not taken all such steps as are reasonable to draw the understatement to the attention of the Commissioners,

and the circumstances are as set out in . . . F1 subsection (2) below, the person concerned shall be liable, subject to subsections (6) and (7) below, to a penalty equal to [F2 15 per cent.] of the tax which would have been lost if the inaccuracy had not been discovered.

[F3 (2) The circumstances referred to in subsection (1) above are that the tax for the period concerned which would have been lost if the inaccuracy had not been discovered—

[F4 equals or exceeds whichever is the lesser of £1,000,000 and 30 per cent. of the relevant amount for that period.]]

(4) [F5 Any reference in this section] to the tax for a prescribed accounting period which would have been lost if an inaccuracy had not been discovered is a reference to the [F6 amount of the understatement of liability or, as the case may be, overstatement of entitlement referred to, in relation to that period, in subsection (1) above]

[F7 (4A) In this section “the relevant amount”, in relation to a prescribed accounting period, means—

(a) for the purposes of a case falling within subsection (1)(a) above, the gross amount of tax for that period; and

(b) for the purposes of a case falling within subsection (1)(b) above, the true amount of tax for that period.

(4B) In this section “the gross amount of tax”, in relation to a prescribed accounting period, means the aggregate of the following amounts, that is to say-

(a) the amount of credit for input tax which (subject to subsection (5A) below) should have been stated on the return for that period, and

(b) the amount of output tax which (subject to that subsection) should have been so stated.

(4C) In relation to any return which, in accordance with prescribed requirements, includes a single amount as the aggregate for the prescribed accounting period to which the return relates of—

(a) the amount representing credit for input tax, and

(b) any other amounts representing refunds or repayments of tax to which there is an entitlement,

references in this section to the amount of credit for input tax shall have effect (so far as they would not so have effect by virtue of subsection (5B) below) as references to the amount of that aggregate.]

(5) In [F8 this section]“the true amount of tax”, in relation to a prescribed accounting period, means the amount of tax which was due from the person concerned for that period or, as the case may be, the amount of the payment (if any) to which he was entitled under section 14(5) of the principal Act for that period.

[F9 (5A) Where—

(a) a return for any prescribed accounting period overstates or understates to any extent a person’s liability to tax or his entitlement to a payment under section 14(5) of the principal Act, and

(b) that return is corrected, in such circumstances and in accordance with such conditions as may be prescribed, by a return for a later such period which understates or overstates, to the corresponding extent, that liability or entitlement,

it shall be assumed for the purposes of [F6 this section][F10 that the statements made by each of those returns (so far as they are not inaccurate in any other respect) are correct statements] for the accounting period to which it relates.

(5B) This section shall have effect in relation to a body which is registered and to which section 20 of the principal Act applies as if—

(a) any reference to a payment under section 14(5) of that Act included a reference to a refund under the said section 20, and

(b) any reference to credit for input tax included a reference to tax chargeable on supplies, [F11 acquisitions] or importations which were not for the purposes of any business carried on by the body.]

(6) Conduct falling within subsection (1) above shall not give rise to liability to a penalty under this section . . . F12 if—

(a) the person concerned satisfies the Comissioners or, on appeal, a value added tax tribunal that there is a reasonable excuse for the conduct, or

(b) at a time when he had no reason to believe that enquiries were being made by the Commissioners into his affairs, so far as they relate to tax, the person concerned furnished to the Commissioners full information with respect to the inaccuracy concerned.

(7) Where, by reason of conduct falling within subsection (1) above,—

(a) a person is convicted of an offence (whether under the principal Act or otherwise), or

(b) a person is assessed to a penalty under section 13 above,

that conduct shall not also give rise to liability to a penalty under this section . . . F12 .

(8) This section shall come into operation on such day as the Treasury may by order made by statutory instrument appoint.

Textual Amendments

F1 Words repealed by Finance Act 1988 (c. 39, SIF 40:2), s. 148, Sch. 14 Pt. III

F2 Words in s. 14(1) substituted (16.3.1992 with effect as mentioned in s. 7(3)(4) of the amending Act) by Finance Act 1992 (c. 20), s. 7(1)

F3 S. 14(2) substituted for s. 14(2)(3) by Finance Act 1988 (c. 39, SIF 40:2), s. 16(2)

F4 Words in s. 14(2) substituted for s. 14(2)(a)(b) (with effect in relation to any prescribed accounting period beginning on or after 1.12.1993) by 1993 c. 34, s. 49, Sch. 2, para. 1(1)

F5 Words substituted by Finance Act 1988 (c. 39, SIF 40:2), s. 16(3)

F6 Words in s. 14(4)(5A) substituted (3.5.1994 with effect as mentioned in s. 45(4) of the amending Act) by 1994 c. 9, s. 45(1)(2); S.I. 1994/1257, art. 2

F7 S. 14(4A)-(4C) inserted (with effect in relation to any prescribed accounting period beginning on or after 1.12.1993) by 1993 c. 34, s. 49, Sch. 2, para. 1(2); S.I. 1993/2782, art. 2

F8 Words substituted by Finance Act 1988 (c. 39, SIF 40:2), s. 16(4)

F9 S. 14(5A)(5B) inserted by Finance Act 1988 (c. 39, SIF 40:2), s. 16(5)

F10 Words in s. 14(5A) substituted (with effect in relation to any prescribed accounting period beginning on or after 1.12.1993) by 1993 c. 34, s. 49, Sch. 2, para. 1(3)(4); S.I. 1993/2782, art. 2

F11 Word in s. 14(5B)(b) inserted (1.12.1992 for certain purposes and 1.1.1993 insofar as not already in force) by Finance (No. 2) Act 1992 (c. 48), s. 14(2), Sch. 3 Pt. II para. 78; S.I. 1992/2979, art. 4, Sch. Pt. II and S.I. 1992/3261, art. 3, Sch.

F12 Words repealed by Finance Act 1988 (c. 39, SIF 40:2), s. 148, Sch. 14 Pt. III

Modifications etc. (not altering text)

C1 Power of appointment conferred by s. 14(8) fully exercised (31.3.1990): S.I. 1989/2270, art. 2