VAT rule-breakers have until 31 December to complete the VAT registration process under a time-limited HM Revenue & Customs (HMRC) campaign.

In July this year, HMRC launched its VAT Initiative in which rule-breakers were offered a special plan to put right their tax affairs. The chance to participate – and be guaranteed the conditions contained in the plan – ended on 30 September.

Since then HMRC has been identifying those who did not come forward. Substantially higher penalties and even criminal prosecution could follow.

The VAT Initiative campaign focuses on businesses in sectors including construction that are trading above the VAT registration threshold – for this year, an annual turnover of more than £73,000 – but who have not registered for VAT with HMRC.

Under the terms of the VAT Initiative, those who have notified their intention to take part must register for VAT by 31 December 2011. They will then receive their VAT registration number and instructions on how to complete their first VAT return. Once this has been submitted, most will face a lower penalty rate of 10% on the VAT that has been paid late.

Marian Wilson, HMRC’s Head of Campaigns, said: “Those who have told us of their intention to disclose now have until the end of December to register for VAT. They must then submit their first VAT return and make arrangements to pay.

“We are determined to ensure everyone pays their fair share and, since September, have begun identifying people and companies who we believe are trading above the VAT threshold but have not come forward. We will be targeting these groups early in the New Year.

“I urge anyone with unpaid tax to use it to come forward and avoid potentially lengthy and costly investigations. The penalty they will pay will still be lower than when HMRC catches up with them.”

You can let HMRC know of your intention to make a tax disclosure by contacting the department on 0845 600 5217, where a dedicated team is available to provide information and advice.

Those coming forward are also invited to disclose any other tax arrears. Where they have to pay a penalty on undeclared tax other than VAT, this will be lower than the usual penalty of up to 100% of the tax owed charged on those who fall outside this opportunity.