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HMRC internal manual

VAT Civil Penalties

HM Revenue & Customs
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Calculation and notification of the penalty: Issuing a penalty Liability Notice

When you have established that a trader is in default in respect of a specific period, you should consider issuing a Penalty Liability Notice (PLN), see VCP10950.

Once a PLN has been issued the trader becomes liable to further penalties without any further notice being served, regardless of whether he remedies the default to which the PLN refers.

You should monitor each case carefully and check to see if EC Sales Lists are submitted by the due date and consider applying penalties in respect of each default.

You cannot apply a penalty unless a PLN has been issued. The issue of a PLN and consequently liability to penalty is provided for in Sections 66(2) and (3) of the VAT Act 1994.

Once a PLN has been served the trader remains liable to penalties for a period of 12 months. If the trader defaults again within that 12 months period in respect of any EC Sales Lists, the period covered by the PLN is extended until 12 months has elapsed without the trader becoming liable to a penalty.

In order to avoid liability to a penalty the trader must be compliant for a complete year (this is usually four consecutive calendar quarterly ESL periods).

If the trader defaults at any time within this year then the 12 month penalty period is extended. To avoid liability to a penalty the trader must complete 12 months without further default. VAT Act 1994 Section 66 (4) refers.

IMPORTANT: The penalty liability Notice (PLN) is period specific. It makes the trader liable a penalty for the period to which the PLN relates and any other periods the due date of which fall after the date of the PLN.

It is essential that the PLN is issued before the due date of the next EC Sales List to make sure that the EC Sales List is penalty liable.

I accordance with the law the PLN remedy date is 14 days, from the date of issue. To allow for postal fluctuations and second class postage the default is actually monitored for 18 days.

Action Points

  • Prepare and issue PLN paying particular attention to the dates.
  • Monitor for response within 14 days deadline.
  • If a response is received process the EC Sales List and update action sheet
  • If no response by the 15th day after the PLN, b/f until 100 days penalty period expires
  • When either EC Sales List received or 100 day maximum is reached (whichever is the earlier) calculate the penalty. Prepare and issue VAT291, see VCP10946, penalty rate is £5 per day (penalty code 12) and letter.
  • It is important to ensure that future compliance is monitored by checking both VISION and VIES information. UK screen option K1 shows date of EC Sales List receipt.

In the event of a further default

If the trader remedied the PLN default (i.e. the trader submitted the EC Sales List to which the PLN referred within the 14 day period of grace and so remedied the default), this current default will be subject to a penalty at £5 per day from the day after the due date. B/f until 100 days expires.

If the trader did not submit within the 14 day period of grace and therefore failed to remedy the default and so incurred a £5 a day penalty, the trader will be liable at £10 per day for the current default from the day after the due date.

You should also issue form VAT291 when appropriate together with an accompanying letter, see VCP10955.

Subsequent defaults

The penalty rate will increase by £5 per day to a maximum of £15 per day for each subsequent default.

You should issue VAT291 as appropriate with a letter shown in VCP10955.