VCP10440 - Belated Notification Penalty: Reasonable excuse: Status of taxable supplies misunderstood
Please see the Compliance Handbook CH70000 for more details about the new failure to notify penalty.
Traders who have claimed that they misunderstood the status of exempt or zero rated supplies have not been successful at Tribunal on the basis that lack of knowledge of basic VAT law cannot be a reasonable excuse.
However, some Tribunals have allowed reasonable excuse in exceptional circumstances and there can be no absolute position.
Scrutiny of the cases where the Tribunal allowed reasonable excuse shows that it depends entirely on the individual circumstances of each case whether the Tribunal will allow reasonable excuse.
Establishing whether supplies are standard rated, zero rated or exempt is covered in some detail in Notice 700 VAT Guide.
HMRC would normally expect decisions on the status of taxable supplies in this area only to require a knowledge of basic VAT law and to maintain any penalty raised, however each case should be considered on its own merits
If a formal enquiry is conducted by HMRC into the liability of supplies in complex circumstances, you should mitigate the penalty by not imposing the penalty for the period of the enquiry.