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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: change of partners during period of evasion

Where partners are named on the registration document

Where the combination of partners has changed during the period of the evasion and the registration document (VAT 1) specifies the individual partners, separate penalties must be assessed and notified to each combination of partners. This should apply whether or not the Department was notified of the change in partners at the correct time.

For example, a partnership trading as the Ideal Restaurant evaded VAT for say two years from January 1997 to January 1999. The partnership consisted of Mr A and Mr B for the period January 1997 to December 1997 and then changed to Mr A, Mr B and Mr C from January 1998 onwards. Two separate penalty assessments should be made and notified as follows:

  1. to: Mr A and Mr B
    t/a the Ideal Restaurant
    for the period January 1997 to December 1997
  2. to: Mr A, Mr B and Mr C
    t/a the Ideal Restaurant
    for the period January 1998 to January 1999

Each notice of assessment should be sent to the registration address, and separately copied to each of the partners concerned, for example Mr A and Mr B would each receive a copy of the penalty letter at (a) and Mr A, Mr B and Mr C a copy of the penalty letter at (b).

Where the business is registered in the trading style only

It is best practice, in relation to Section 60 penalties, that the procedure at (a) above should be followed in all cases wherever possible - whether or not the name of the firm only is shown on the VAT 1 and the partners not individually named. This, however, may cause practical difficulties in exceptional cases where there have been many partners and frequent changes. Section 45 of the VAT Act 1994 enables a partnership to be registered in the name of the firm only. The following extracts deal with notification of assessments to a partnership so registered.

Section 45(3) and 45(4) VAT Act 94:

45(3) Where a person ceases to be a member of a partnership during a prescribed accounting period, ……..any notice, whether of assessment or otherwise, which is served on the partnership and relates to, or to any matter arising in, that period or any earlier period during the whole or part of which he was a member of the partnership shall be treated as served also on him.

45(4)Without prejudice to Section 16 of the Partnership Act 1890 (notice of acting partner to be notice to the firm) any notice, whether of assessment or otherwise, which is addressed to a partnership by the name in which it is registered by virtue of subsection (1) above and is served in accordance with this Act shall be treated for the purposes of this Act as served on the partnership and, accordingly, where subsection (3) above applies, as served also on the former partner.

Hence, under these sections - where the partnership is registered in the trading style only any former partners will be deemed served with an assessment as long as it is addressed to the trading name in which the partnership is registered, and will be jointly liable for the period they were partners. The civil evasion penalty may therefore be assessed and notified accordingly, that is in the name shown on the VAT 1, and sent to the registration address. A copy of the penalty letter should be sent to each of the current partners, and to any previous partner or partners involved during the period of evasion if known and if at all practical.