Compliancy is the practice of adhering to rules and regulations and making sure that these are met to a high standard. When it comes to VAT, it is highly important to follow VAT rules and regulations and stay compliant with them, or you could be fined or even face imprisonment.
The rules of VAT vary widely across EU countries, and this ranges from differences in VAT registration thresholds to VAT returns submission dates or harshness of related fines. As a merchant, you have to stay on top of these different regulations. Ignorance won’t save you, and can come dear in the case of not complying correctly. So, how important is it to comply?
VAT non-compliance Penalties
Across most EU countries, if businesses are not VAT-compliant, it is normal practice for tax authorities to charge penalties in the form of a percentage of the VAT that is due. There are different types of penalties depending on the reasons why a business is found to be non-compliant:
- Late registration penalty: Failure to register on time, namely before they have reached the registration threshold
- Late VAT submission penalty: Failure to submit the VAT returns by their due date
- Inaccuracy penalty: A business makes an accidental or deliberate mistake on their VAT return
- Wrongdoing penalty: This can happen when a business which is not yet registered for VAT actually issues an invoice reporting false VAT
Examples of EU countries which charge interest on unpaid VAT as a penalty include Germany, France, Italy, Poland and the Netherlands. These VAT penalties act as a gentle reminder of the importance of businesses staying VAT compliant, and most businesses and individuals do stay fully compliant. However, there are some cases of businesses and individuals who do not charge VAT correctly or misreport VAT deliberately. This is known as committing VAT Fraud, the consequences of which can be more serious and far reaching than paying a fine.
VAT Fraud Penalties
In suspected cases of VAT Fraud, it is standard practice for tax authorities in most EU countries to carry out VAT Fraud investigations. These range from simple inspections, to searches of businesses premises. If found guilty of committing fraud, depending on how serious the crime is, the tax fraudster can be sentenced to up to 10 years in prison or more.
One example of a serious case of VAT fraud in Europe took place earlier this year – in June, seven traders based in Italy, Austria and Romania were arrested due to suspicions they were taking part in large-scale VAT fraud in the EU drinks market,evading almost €2 million worth of VAT. There is a fine yet important line between not knowing about tax law, and actively evading it – We will treat the difference between tax evasion and tax avoidance in an upcoming article.
How to stay compliant
Your business can stay VAT compliant by doing the following:
- Keep yourself informed about the EU distance selling thresholds according to the countries you export to
- Do register for VAT once your business has passed the threshold
- Keep up-to-date on the current VAT rates for each country
- Keep a record of the submission deadlines for VAT returns
- Always submit VAT returns as per due date
J&P Accountants are specialists in VAT rules and regulations and can alleviate the tiresome and frustrating task to keep track of VAT registration thresholds and deadlines whilst you are trying to focus on your business – so if in doubt, send us a message via social media, drop an e-mail to enquiries@jpaccountant.com or call us today on 0161 637 1080.
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