HM Revenue & Customs is chasing up more than 40,000 limited companies and sole traders who it believes should be registered to pay Value Added Tax. Letters are being issued to companies and sole traders asking them to come forward and take part in the latest amnesty.

Any business that has failed to register for VAT has until 30th September 2011 to come forward and settle their tax bill. A partial amnesty will be offered, which will result in smaller penalties being levied on the outstanding VAT due at the end of September. If HMRC considers that a company or sole trader should have known that they were required to register for VAT, they could be charged up to 100 percent of the outstanding tax as penalties.

The concern for a number of tax advisers is the method that will be used by HMRC to decide who was aware of the need to register, and who made a genuine mistake. It could be that a business that has registered to pay income tax and filed self assessment tax returns will be deemed to be knowledgeable about VAT registration.

A large number of businesses are looking at the profit of a sale, rather than how much a sale costs, which could result in not registering for VAT at the required time. Businesses that come forward will face a 10 percent penalty being added to the tax owed, plus investigation into other tax still outstanding. The director of risk and intelligence at HMRC, Mike Wells, urges sole traders and other businesses who should have registered to come forward and sort out their tax affairs.

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