Liability to a VAT civil evasion penalty: interaction between S60 VATA 1994 penalties and para 2 schedule 24 FA 2007 penalties
The guidance at CH81011 provides information on the commencement date for penalties under Para 2 Sch 24 FA 2007. The penalties for failing to notify HMRC of an under-assessment to tax apply where
- the under-assessment relates to a tax period beginning on or after 1 April 2008 for VAT and
- the under-assessment relates to a return which is due to be filed on or after 1 April 2009 for VAT.
This means that, generally, the first potential period available for a Para 2 Sch 24 penalty would be the period 03/09 as this is the first period due to be filed after 1 April 2009.
Some agents held the view that S60 penalties ceased to have effect from 1 April 2008 and so neither S60 nor Para 2 Sch 24 penalties could be charged for periods due to be filed before 1 April 2009. This is not correct. The legislation under S60 VATA 1994 has not been repealed and stands without interruption for acts of evasion. The relevant acts of evasion that give rise to a S60 penalty are shown at VATCEP2030. However, a S60 penalty cannot apply for periods due to be filed after 1 April 2009, where the offence relates to an inaccuracy in a document, see VATCEP1020.
This has been tested at First Tier Tribunal (Mr Terence Walker and Mrs Dawn Walker vs. The Commissioners for HMRC ref. TC2011 01810 and TC2011 0228 where Judge Timothy Herrington’s decision stated:
“We take the view that in the absence of clear language to the contrary, Parliament must be assumed to have intended to continue the existing provisions until the new provisions came into effect and not give taxpayers a year’s “holiday” from dishonesty related penalties concerning inaccurate documents or under-assessments.”
S60 penalty or Para 2 Schedule 24 for periods due to be filed on or after 1 April 2009
There are situations where a S60 penalty or a Para 2 Sch 24 penalty could be charged for the same VAT period (for periods due to be filed after 1 April 2009).
Where a person has failed to submit a VAT Return and accepted central assessments for the purpose of evading VAT, and there is conduct involving dishonesty, we can continue to charge a S60 penalty. However, we can also apply a Para 2 Sch 24 penalty if the person has received a central assessment for the same VAT period but failed to inform us, within 30 days, that we had under assessed them.
If a S60 penalty for dishonest conduct does not apply then we can charge a Para 2 Sch 24 penalty for failure to notify an under-assessment. We will not charge both penalties.
VAT Return for period 05/14 (due 30/6/14) not submitted:
- 15/7/14 central assessment of £1100 issued
- 30/07/14 central assessment paid (VAT Return still not submitted)
- 30/09/14 VAT Return for period 08/14 submitted, repayment due
- 15/10/14 compliance check to examine repayment for VAT period 08/14, also reviews VAT period 05/14 which shows a net liability of £10500. The repayment claim for 08/14 is correct.
We conduct a PN160 check into this case as we suspect evasion. A S60 penalty is appropriate for the VAT period 05/14 for an act of evasion involving dishonest conduct (failure to submit a VAT Return and accepting a central assessment). The S60 penalty is based on the amount of VAT evaded or sought to be evaded and can be reduced for mitigation to a minimum of 20% of the VAT evaded.
However, if the evidence isn’t sufficient for a S60 penalty to be considered we can, as an alternative, charge a Para 2 Sch 24 penalty for failure to notify an under-assessment for the VAT period 05/14. The PLR is calculated by subtracting the amount of the central assessment from the net liability. See CH82162. The penalty is between 0% and 30% of the PLR depending on the type and quality of disclosure.