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HMRC internal manual

Compliance Handbook

Penalties for VAT and excise wrongdoing: overview

Most people comply with tax law but there are some who don’t. We have financial penalties to encourage these people to meet their legal obligations.

From 1 April 2010 a new penalty regime applies where a person

  • makes an unauthorised issue of an invoice showing or including VAT
  • misuses a product so that a higher rate of excise duty is payable, or
  • handles goods subject to unpaid excise duty.

We will not charge a penalty if we are satisfied that the person

  • has a reasonable excuse for a non-deliberate act, and
  • if the excuse has ended, has remedied the act without unreasonable delay.

The amount of the penalty is a percentage of the VAT shown on, or included in, the invoice or the extra excise duty due. The percentage is determined by the behaviour that led to the act - higher penalties are payable if the act was deliberate.

Reductions in the percentage penalty are given for disclosure and depend upon

  • whether the disclosure is unprompted or prompted, and
  • the quality of the disclosure.

We will issue a penalty assessment. The person is entitled to a review of, and can appeal against, our decision

  • that a penalty is payable, and/or
  • the amount of the penalty.

Where necessary the appeal will be heard by the tribunal.

We can agree to a special reduction of the penalty in special circumstances.

The legislation for the VAT and Excise wrongdoing penalty regime is in FA08/SCH41. Schedule 41 also provides a penalty where a person fails to comply with a relevant obligation. Further guidance on this penalty is at CH70000+.

The penalty provisions in TMA70/S100-103 do not apply to a penalty under FA08/SCH41.

When where goods have been seized at importation from outside the EU, see CH91200.

There are also specific rules covering

  • how the penalty provisions apply in relation to agents and companies
  • what happens if a person incurs a penalty for VAT and Excise wrongdoing and another penalty on the same tax.