Background to VAT civil evasion penalty: the law
As you read this guidance you should note that ‘New penalties’ legislation was introduced by Schedule 24, Finance Act 2007 and Schedule 41, Finance Act 2008. As a consequence you will need to check if one of these new penalties as opposed to a VAT civil evasion penalty applies.
CH71120 - Penalties for Failure to Notify: In what circumstances is a penalty payable: Commencement date
CH81011 - Penalties for Inaccuracies: In what circumstances is a penalty payable: Commencement date for FA 2007 penalties
Where there has been a failure to submit a VAT return and the intention is considered to be to evade VAT and the conduct involves dishonesty, the person may be liable to a penalty under S60 VATA 1994.
CH91100 - Penalties for VAT and Excise Wrongdoing: In what circumstances is a penalty payable: Commencement date
Section 13 of the Finance Act 1985, which received Royal Assent on 25 July 1985, introduced a penalty for evasion of VAT where it can be shown that a sole proprietor’s, partnership’s or company’s conduct involves dishonesty.
The legislation governing civil evasion is now contained in the VAT Act 1994:
- Section 60 contains the legislation for the civil evasion penalty.
- Section 61 allows for the penalty to be recovered from directors or managing officers.
- Section 70 provides for the civil evasion penalty to be mitigated.
- Section 71 concerns ‘reasonable excuse’ and ‘credit for input tax’.
The treatment of VAT evasion in this way is an alternative to, and not a replacement of, criminal proceedings. While the Court of Appeal has held in Han & Yau v. Commissioners of Customs and Excise (2001) EWCA Civ 1048; (2001) 1 W.L.R. 2253 that the civil evasion penalty is to be classified as equivalent to a criminal matter for the purposes of Article 6 of the European Convention on Human Rights, there is a separate criminal offence of fraudulent evasion of value added tax under Section 72 of the VAT Act 1994. Furthermore, it is departmental policy that only appropriately trained officers may conduct civil investigations of suspected VAT evasion; this includes training in PN160, PN161, New Penalties and CIF regimes.