VAT penalties for managers?

On 24 September 2012, HMRC published Factsheet 20 giving details of how the old penalty rules would apply to VAT breaches occurring before the new penalty regime (see below) came into force.

The eye-catching statement is that HMRC intends to impose penalties on the managers and officers of a company, where HMRC believes that the company’s breach can be directly attributed to a named individual.  Although HMRC makes this statement in the context of the old penalty regime, we expect this policy to apply under the new penalty regime too.

Why are penalties under the old regime relevant? 

The new regime, which was introduced to harmonise penalties across all taxes and which changed many aspects (e.g. new penalty rates, graduated according to the gravity of the breach, with reductions for co‑operation, etc.), applies to:

  • errors in a VAT return covering a period starting on or after 1 April 2008, if the return was due to be sent to HMRC on or after 1 April 2009, and
  • failure to notify HMRC of a liability to be VAT registered which arose after 1 April 2010.

However, HMRC can inspect up to six years of past business records and if, during an inspection, HMRC discovers an error or failure which occurred when the old regime was in force, HMRC could impose penalties under the old regime too.

What sort of breaches might lead to a penalty and how much would these penalties be? 

Managers and officers could be liable for a penalty on errors (e.g. under-declarations in a VAT return) or failures (e.g. not registering for VAT) occurring under the previous penalty rules.  The Factsheet explains that HMRC will charge 100% of the difference between the VAT liability actually declared to HMRC and the VAT liability which should have been declared to HMRC.  However, HMRC also have the power to reduce such penalties by up to 40% for full and early disclosure and by up to 40% for good co-operation.

For assistance in reviewing and appealing HMRC penalties or in handling Tax/VAT Investigations by HMRC, please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown (VAT), Kevin Hall (VAT), John Hood (Tax Investigations) or Noel Hankinson (Tax Investigations).