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HMRC internal manual

Civil evasion penalties for Customs, Excise and VAT

Civil evasion penalties for Customs, Excise and VAT: the rules for assessment and notification: notification

General

It is the legal view that only the total amount due by way of penalty is required to be notified to the taxpayer.

In the Court of Appeal case of Nizar Bassimeh v Commissioners (1997) STC 33, Lord Justice Evans said,

“I would hold, therefore that a single penalty may be assessed and notified both to the taxpayer under section 13 (now section 60 of the VATA ’94) and to the company and its director under section 14 (now section 61 of the VATA ’94) which, although it has been assessed, i.e. calculated, by reference to separate tax quarters, nevertheless may be equivalent to the total amount of tax evaded during a period which includes more than one quarter”.

Notification to partnerships (Customs and VAT only)

In the case of a dishonest partner, the conduct of that partner causes the partnership to be liable to a penalty and you should assess the penalty on the partnership, not only the dishonest partner or partners. Address the penalty notice in the same way as the VAT assessment. This will normally be in the names of the partners and the trading style, for example:

Mr. Smith, Mrs. Jones and Miss Williams

T/A The Garden Restaurant

Send the notice to the partnership and a copy to each partner. This approach was supported in the tribunal appeal of Santi Bag Restaurant (MAN/93/1177): The Chairman, Mr. Simpson, said

“… although no dishonesty was alleged against Mr. Bokth, the penalty assessment was addressed to the partnership. That was the correct course. The dishonest evasion which gave rise to the penalty occurred in the ordinary course of the partnership business, by the suppression of some of the takings of the business. It follows that the partnership, and not merely Mr. Anwar, is liable to the penalty: section 10 of the Partnership Act 1890, and that Mr. Bokth is liable to the penalty jointly with Mr. Anwar and also severally: section 12 of the 1890 Act.

Change of partners during period of evasion

Where the combination of partners has changed during the period of the evasion and the registration document (VAT 1) specifies the individual partners, separate penalties must be assessed and notified to each combination of partners. This should apply whether or not the Department was notified of the change in partners at the correct time.

For example, a partnership trading as the Ideal Restaurant evaded VAT for say two years from January 1997 to January 1999. The partnership consisted of Mr A and Mr B for the period January 1997 to December 1997 and then changed to Mr A, Mr B and Mr C from January 1998 onwards. Two separate penalty assessments should be made and notified as follows to:

  • Mr A and Mr B
    t/a the Ideal Restaurant
    for the period January 1997 to December 1997
     
  • Mr A, Mr B and Mr C
    t/a the Ideal Restaurant
    for the period January 1998 to January 1999

Each notice of assessment should be sent to the registration address, and separately copied to each of the partners concerned, for example Mr A and Mr B would each receive a copy of the penalty letter at (a) and Mr A, Mr B and Mr C a copy of the penalty letter at (b).

Where the business is registered in the trading style only, it is best practice, in relation to Section 60 VATA 1994 penalties, that the procedure at (a) above should be followed in all cases wherever possible - whether or not the name of the firm only is shown on the VAT 1 and the partners not individually named. This, however, may cause practical difficulties in exceptional cases where there have been many partners and frequent changes. Section 45 of the VAT Act 1994 enables a partnership to be registered in the name of the firm only. The following extracts deal with notification of assessments to a partnership so registered.

Section 45(3) and 45(4) VAT Act 94:

45(3) Where a person ceases to be a member of a partnership during a prescribed accounting period, ……..any notice, whether of assessment or otherwise, which is served on the partnership and relates to, or to any matter arising in, that period or any earlier period during the whole or part of which he was a member of the partnership shall be treated as served also on him.

45(4) Without prejudice to Section 16 of the Partnership Act 1890 (notice of acting partner to be notice to the firm) any notice, whether of assessment or otherwise, which is addressed to a partnership by the name in which it is registered by virtue of subsection (1) above and is served in accordance with this Act shall be treated for the purposes of this Act as served on the partnership and, accordingly, where subsection (3) above applies, as served also on the former partner.

Hence, under these sections - where the partnership is registered in the trading style only any former partners will be deemed served with an assessment as long as it is addressed to the trading name in which the partnership is registered, and will be jointly liable for the period they were partners. The civil evasion penalty may therefore be assessed and notified accordingly, that is in the name shown on the VAT 1, and sent to the registration address. A copy of the penalty letter should be sent to each of the current partners, and to any previous partner or partners involved during the period of evasion if known and if at all practical.

Notification to named and managing officers (Customs and VAT only)

Customs

In the case where there is evidence to show the conduct giving rise to the penalty is attributable to the dishonesty of a named officer and is to be apportioned, whether wholly or in part, the company must be notified of the penalty liability under Section 25, in addition to a separate notification of the apportionment under Section 28.

VAT

In the case where there is evidence to show the conduct giving rise to the penalty is attributable to the dishonesty of a Named Officer and is to be apportioned, whether wholly or in part, the Company must be notified of the penalty liability under Section 60, in addition to a separate notification of the apportionment under Section 61.

Form VAT 292 cannot be used to impose penalties on unregistered persons.

The penalty assessment for such individuals will therefore be issued in the form of a letter which will include a demand for the amount liable.

Steps to be followed once the criteria to apportion the civil evasion penalty have been met:

  • Notify the incorporated company of the Section 60 penalty by the standard Notification of Civil Evasion Penalty letter (SEES>Forms & Letters>Local Compliance>VAT(LC)).
  • Assess and notify the incorporated company of the apportionment to the Named Officer or officers under Section 61 by the S61 letter to company (SEES>Forms & Letters>Local Compliance>VAT(LC)).
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Ensure you have:

  • full name and address details of the party to be penalised
  • the amount of the penalty and
  • any associated VRNs to hand.

Details of your case will be recorded by the Cumbernauld Accounting Team on a central ledger and you will be given a MU reference number to QUOTE ON ALL SUBSEQUENT CORRESPONDENCE.

  • Prepare two hardcopies of the civil evasion penalty S61 letter to the Named Officer (SEES>Forms & Letters>Local Compliance>VAT(LC)), incorporating the reference number you have been given in the header of both letters (that is ‘Our Reference’). Mark one clearly ++ REMITTANCE ADVICE ++
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000) . In the subject heading of your email, please ensure that you quote the MU reference number. 
  • Send both hard copies to the person.