Liability to a VAT civil evasion penalty: double jeopardy
No trader is to be put into ‘double jeopardy’ by being penalised more than once for the same conduct. For example, a trader who has been prosecuted, or has had proceedings compounded, must not be assessed for a civil penalty for the same conduct. Nor is a person who is assessed for a civil evasion penalty to be assessed for any other civil penalty for the same conduct.
However, it should be noted that it is not double jeopardy to impose a default surcharge and civil evasion penalty for conduct occurring in the same tax period. Similarly, default interest can still be applied.
It is important to make a prompt decision whether to take civil evasion action or prosecution action or to assess for a civil penalty. Civil penalty policy guidance confirms that penalties should be issued promptly after the trader’s error or failure comes to light.
If a civil penalty has been assessed it can be withdrawn and replaced with a civil evasion penalty or prosecution action taken, subject to the following considerations which apply to misdeclaration penalty (MP) - similar considerations apply to other civil penalties:
- MP inhibited on assessment form but not inhibited when input.
The MP can be withdrawn and civil evasion action taken. If the trader has been notified of MP, a letter must be sent to the trader stating that the MP should not have been applied and it was an administrative error.
- MP not inhibited, but the tests for MP were failed (that is no penalty was applied). In this case even though the penalty was tested for, no penalty was applied. Therefore civil evasion action can be taken, as there will be no double jeopardy.
- MP not inhibited and MP was applied.
The MP can be withdrawn and civil evasion action taken. However, this should only be done where information has later come to light that has led to the view that evasion has taken place. This applies whether or not the trader has paid the penalty. However, extra care should be taken to ensure that there was no information available that would suggest the case was appropriate to investigation at the time the MP was raised if the penalty has been paid.
Care should be taken to ensure that a trader has not been induced to cooperate with an investigation into their VAT affairs on the basis that civil evasion action or prosecution action will not be pursued. If there has been inducement the MP should not be withdrawn and civil evasion action or prosecution action should not be taken.
- Tribunal Hearings
If a tribunal hearing has been held in respect of the civil penalty, before prosecution action is taken advice should be sought from HMRC lawyers, to establish whether the act of also taking prosecution action could be regarded as an abuse of process. If it would be, then the civil penalty should not be withdrawn and prosecution action should not be taken.
Please note - it is important to ensure that civil evasion action or prosecution action will take place before the civil penalty is withdrawn because it is not feasible to make another civil penalty assessment after withdrawal of a civil penalty for the same failure.