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HMRC internal manual

VAT Civil Evasion Penalty

Calculating VAT civil evasion penalty: deciding on the level of a penalty

When calculating the amount of VAT evaded (or sought to be evaded) as a basis for issuing a civil evasion penalty assessment, our policy is for each tax period the evasion takes place in

  • to deduct from the gross amount evaded (or sought to be evaded) any centrally assessed amounts, whether these centrally assessed amounts have been paid or not and
  • to deduct from the gross amount evaded (or sought to be evaded) any over declarations that are directly related to the actual act or acts of evasion, and take place in the same tax period or tax periods as the culpable under declarations.

If you are in any doubt as to how to calculate the amount of VAT evaded, please contact the COPGU Mailbox for further advice.

In exercising discretion to reduce a civil evasion penalty, it is the Department’s policy that the trader can ‘earn’ such mitigation. The mitigation system has two main components:

  1. Up to 40% - for an early and truthful explanation as to why the arrears arose and the true extent of them and
  2. Up to 40% - for fully embracing and meeting responsibilities under the investigation procedure, by for example, supplying information promptly, quantification of irregularities, attending meetings and answering questions.

The first component is essentially about disclosure. We are giving a reduction for admissions the taxpayer makes; about the reason or reasons they knowingly did the act or acts or omission or omissions, the period of time the acts and/or omissions cover and how much the acts and/or omissions amount to.

The second component is essentially about cooperation. We are giving a reduction for the cooperation the taxpayer gives us (to the best of their ability) so as not to cause us significant extra work.

For the purposes of reducing the penalty these criteria will be taken into account from when the opening letter is issued. We will also look at the behaviour during the compliance check which precede the issue of the opening letter, and if appropriate, will take into consideration when reducing the penalty.