VAT: penalty for participating in VAT fraud
Published 5 December 2016
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Who is likely to be affected
Businesses participating in VAT fraud.
General description of the measure
The measure will introduce a new and more effective penalty for participating in VAT fraud. It will be applied to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. This is also known as the ‘knowledge principle’.
Policy objective
The measure will improve the application of penalties to those facilitating orchestrated VAT fraud. The penalty will be issued at the same time as the tax decision improving its effectiveness. This should also reduce the prospect of the tax decision and the penalty being litigated separately. This measure should prevent businesses, HM Revenue and Customs (HMRC) and the tribunal service incurring additional related costs. It supports the government’s objective of being tough on fraud.
Background to the measure
The measure was announced at Budget 2016 and was consulted on from 28 September 2016 to 11 November 2016. The consultation covered the case for a new penalty as well as exploring potential design features.
Detailed proposal
Operative date
The measure will have effect following Royal Assent to Finance Bill 2017.
Current law
Current law is included in Schedule 24 of Finance Act 2007.
Proposed revisions
Legislation will be introduced in Finance Bill 2017. The new legislation will align the penalty with the ‘knowledge principle’ to create a more effective penalty regime which can be applied to Missing Trader Intra Community fraud and other VAT fraud cases.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 |
|---|---|---|---|---|---|
| - | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
The measure is not expected to have any impact on individuals and households.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
HMRC has considered this matter and have not identified any equalities impact.
Impact on business including civil society organisations
This measure will have no impact on businesses that are compliant. It will only impact on businesses that participate in VAT fraud.
Operational impact (£m) (HMRC or other)
This change is likely to result in a small net resource saving to HMRC as it enables more effective use of its anti-fraud resource. There are also likely to be some reductions in litigation and tribunal costs.
Other impacts
Justice Impact Test: a Justice Impact Test is not necessary because we expect that this measure will lead to some reductions in litigation as there will no longer be a mismatch between the ‘knowledge principle’ and the penalty, which should enable the two appeals to be heard at the same time. Therefore the costs of those litigating these cases will also be reduced.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Kristian Jarvis on Telephone: 03000 585747 or email: kristian.jarvis1@hmrc.gsi.gov.uk.