§ Mr. SteenTo ask the Chancellor of the Exchequer if he will change the policy of Her Majesty's Customs and Excise that genuine mistakes made in good faith are not reasonable excuses for surcharge purposes. [156047]
§ John HealeyThe VAT system aims to encourage payment of the right tax at the right time. As well as safeguarding revenues, this provides equity for all taxpaying businesses. A business may be penalised if it does not pay the right tax at the right time: the misdeclaration penalty penalises significant or repeated errors in the amount of tax paid and the default surcharge penalises late payment.
The VAT penalty system has safeguards to ensure that businesses are not treated over-harshly. For the smallest businesses, several warnings are issued before a late payment penalty is issued—so that a business would not be penalised until its fifth default. Both misdeclaration penalties and default penalties can be withdrawn if there is a reasonable excuse for an error or delay. In this context, reasonable excuses can include compassionate circumstances or unforeseen events. However, this would not include mistakes of the type to which the hon. Gentleman refers since the penalties are, in part, designed to encourage accuracy.