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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 this wrongdoing 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.

This regime also applies to Landfill Tax from 1 April 2018 when a person makes, knowingly causes, or knowingly permits a disposal of material at an unauthorised waste site, see CH91800.

Although the title of all the pages in this section do not include any reference to Landfill Tax, they apply throughout to Landfill from 1 April 2018.

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

  • for Landfill Tax wrongdoings; committed the wrongdoing non-deliberately
  • for VAT and excise wrongdoing; 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, or Landfill tax due. The percentage is determined by the behaviour that led to the wrongdoing - higher penalties are payable if the act was deliberate or deliberate and concealed.

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.

The legislation for Landfill Tax wrongdoings was introduced in FA18/SCH12.

FA08/SCH41

FA18/SCH12