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HMRC internal manual

Compliance Handbook

HM Revenue & Customs
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Penalties for VAT and Excise Wrongdoing: Other penalty issues: Agent acting: Relationships

The terms ‘agent’ or ‘someone acting on a person’s behalf’ is not limited to, say, a ‘tax accountant’. But even when someone is acting on behalf of another person it is important to focus on the behaviour of the person whose wrongdoing it was.

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VAT groups of companies


An employee, whether of a company (an ‘ordinary’ employee who is not an officer of that company), partnership or individual, is generally a servant and not an agent.

Where an employer has done something wrong as a result of the action or inaction of an employee

  • a penalty will be chargeable on the employer if the employer has not taken reasonable care to set up systems and procedures, and to supervise and manage the employee so as to avoid wrongdoing. The employer cannot simply say ‘It was my employee’s fault, not mine’. If a prudent and reasonable employer taking reasonable care would have prevented the wrongdoing then this employer is responsible for the wrongdoing and will incur a penalty.
  • the employer is not responsible for the wrongdoing and will not incur a penalty if even a prudent and reasonable employer taking reasonable care would not have spotted the wrongdoing by the employee, such as some well-disguised internal fraud. The employer will, of course, have to pay the tax or duty due.
  • the employee will be responsible for the wrongdoing, not the employer if the employee clearly acted in their own interest and not on behalf of or to the benefit of the employer.

If a company has its own ‘in-house’ tax department, staffed by its employees, then the relationship between a company and, say its tax manager, an employee, is that described above. The officers of the company must take all reasonable measures to supervise and check the work of the tax manager. If they fail in that and a wrongdoing occurs the penalty will be chargeable on the company.

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A company is a legal person, see CH91250, but it acts in the material world through the people who are its officers - normally its directors and company secretary (if one has been appointed).

Those people run the company, make its returns, and so on through all its legal obligations.

It is reasonable to expect the officers on behalf of the company to

  • set up systems and procedures to create and retain accurate records
  • make accurate returns
  • comply with all relevant obligations
  • refrain from any wrongdoings, and
  • meet all other obligations in relation to the company’s tax affairs.

That is, to carry out for the company the duties in relation to tax that partners would do for partnerships and individuals would do for themselves.

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VAT groups of companies

For VAT, in a Section 43 VATA 1994 group of companies ‘any business carried on by a member of the group shall be treated as carried on by the representative member’.

In effect, the representative member company makes one return for all and is the person, see CH91250, for the purposes of the penalty legislation. It is not acting on behalf of (and so is not an agent of) the other group companies.