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HMRC internal manual

Compliance Handbook

Penalties for VAT and Excise Wrongdoing: Calculating the penalty: Potential Lost Revenue: Examples

Example 1 - Unauthorised issue of an invoice showing VAT

Fabrizio operates a garage as a sole proprietor. Fabrizio is not registered for VAT as he is below the registration threshold but he includes VAT on the invoices he issues to customers. In the quarter to 31 March 2013 he issues invoices showing a total of £1,935 described as VAT.

Because Fabrizio is not registered for VAT he is unauthorised to issue invoices showing an amount as being VAT and is liable to a penalty. The PLR is the amount showing as being VAT - £1,935.

Example 2 - Misuse of a product

Simon Fellows has been using the red diesel acquired for his farm machinery in his family car. He has used his brother-in-law’s diesel receipts in his business records to conceal the fact that he has not been buying ordinary diesel.

Simon knows that red diesel should not be used in ordinary road vehicles and yet chose to do so. He is liable to a penalty for deliberately using the red diesel for a use that attracts a higher duty. The PLR is the full duty payable on the diesel Simon has actually used as road fuel less credit for the duty Simon has paid on the red diesel itself.

Example 3 - Supplying a product knowing it will be misused

Alistair sells oil to householders for their domestic heating. He pays duty on this oil at the rebated gas oil rate. He also sells this oil to his friend George. Alistair knows that George uses the oil to run the small motor launch he keeps at the local marina. The fuel George uses should be subject to excise duty at the higher heavy oil rate.

Alistair is liable to a penalty for supplying the oil knowing it will be used for a purpose that attracts a higher duty. The PLR is the extra duty payable on the fuel.

Example 4 - Handling goods subject to unpaid excise duty

Amrita has purchased goods from Kumar. She is fully aware that the goods have been diverted from a UK excise warehouse and the duty has not been paid.

Amrita is liable to a penalty because she has acquired goods on which duty has not been paid and has not been deferred. The PLR is the full duty unpaid on the goods.

Example 5 - Knowingly making a disposal of taxable material at an unauthorised waste site

Bob has been renovating a large house he purchased at auction to add to his by to let portfolio. He knows that building rubble is subject to Landfill Tax but disposes of several loads of rubble from the house in a disused quarry.

Bob is liable to a penalty for deliberately making a disposal of material subject to Landfill Tax at an unauthorised waste site. The PLR is the standard rate of Landfill Tax due on the complete disposal even where this includes inert rubble.