§ In addition, I have a further series of reforms to propose to the current system of VAT penalties.
§ First, I intend to focus the rules better so that only larger errors and the most persistent offenders will incur the "misdeclaration penalty". This will reduce the number of penalties imposed by over 40 per cent. Secondly, I propose to place a three-year limit on the number of years' interest that can be charged when tax has been underpaid. Thirdly, I have decided to reform the VAT default surcharge so that traders will be notified sooner of default and surcharged at a lower rate, and only on larger defaults. This will make the surcharge more effective, but remove some 125,000 small traders from the default surcharge altogether. I know that this will be welcomed by small businesses.