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HMRC internal manual

VAT Civil Evasion Penalty

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HM Revenue & Customs
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Assessment and notification of VAT civil evasion penalty: time limits and legal basis for assessing

Assessment

The power to assess amounts due by way of penalties, interest or surcharge is provided under Section 76 of the VAT Act 1994. Section 76(3) states:

  1. In the case of penalties, interest and surcharge referred to in the following paragraphs, the assessment shall be of an amount due in respect of the prescribed accounting period which in the paragraph concerned is referred to as ‘the relevant period’ -

Subsection (3)(b) states:

  1. in the case of a penalty under Section 60 relating to evasion of VAT, the relevant period is the prescribed accounting period for which the VAT evaded was due;

and subsection (3)(c) states:

  1. in the case of a penalty under Section 60 relating to the obtaining of the payment of a VAT credit, the relevant period is the prescribed accounting period in respect of which the payment was obtained.

Therefore the law requires that in calculating the amount due by way of a civil evasion penalty, you take account of the VAT evaded in each accounting period, where possible. Your recordings must therefore show the amounts liable to penalty on a period by period basis. The amount of the penalty will be the total of the penalty amounts calculated for each accounting period.

Further, the amount of the penalty assessment and the amount of an assessment of the tax due are not co-dependent (see Commissioners of HM Revenue & Customs v Liaqat Ali t/a Vakas Balti [2006] EWCA Civ 1572).