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HMRC internal manual

VAT Civil Evasion Penalty

Apportioning VAT civil evasion penalty: basis for apportioning a penalty to directors and managing officers

The power to recover a proportion or all of a S60 penalty from directors, managing officers or members is contained in Section 61 of the VAT Act 1994. It allows recovery where there is evidence to show that the conduct giving rise to the penalty is attributable to the dishonesty of the director, managing officer or managing member of an LLP to whom it is intended to seek payment of the penalty from.

It is commonly referred to as apportioning a penalty to a director, managing officer or managing member (together, referred to as a ‘named officer’ under Section 61:

  1. Where it appears to the Commissioners -



  1. that a body corporate is liable to a penalty under Section 60, and
  2. that the conduct giving rise to that penalty is, in whole or in part, attributable to the dishonesty of a person who is, or at the material time was, a director or managing officer of the body corporate (a ‘named officer’),
  3. the Commissioners may serve a notice under this section on the body corporate and on the named officer.


  1. A notice under this section shall state -



  1. the amount of the penalty referred to in subsection (1)(a) above (‘the basic penalty’), and
  2. that the Commissioners propose, in accordance with this section, to recover from the named officer such portion (which may be the whole) of the basic penalty as is specified in the notice.


  1. Where a notice is served under this section, the portion of the basic penalty specified in the notice shall be recoverable from the named officer as if he were personally liable under Section 60 to a penalty which corresponds to that portion; and the amount of that penalty may be assessed and notified to him accordingly under Section 76.

A ‘managing officer’ is defined in Section 61(6) of the VAT Act 1994:

In this section a ‘managing officer’, in relation to a body corporate, means any manager, secretary or other similar officer of the body corporate or any person purporting to act in any such capacity or as a director; and where the affairs of a body corporate are managed by its members, this section shall apply in relation to the conduct of a member in connection with his functions of management as if he were a director of the body corporate.

The power to apportion a penalty to a named officer was introduced to deter such personnel from acting dishonestly by preventing them from avoiding sanctions by hiding behind corporate liability. It was also intended to increase the likelihood of recovering a penalty in situations where it is known before assessment that the corporate body cannot afford to pay.

However, in securing this additional power, it was stated in Parliament that it would be particularly used in certain circumstances. Therefore, providing the legal basis is satisfied, as a matter of policy you should only apportion a penalty to a named officer where:

  • there is evidence that the person has gained personally from the evasion
  • the corporate body is insolvent or
  • the corporate body is suspected of becoming insolvent.