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HMRC internal manual

VAT Civil Penalties

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HM Revenue & Customs
Updated
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Incorrect certificates to zero-rating and lower rate supplies: Why a penalty arises: Penalty for incorrect issue of a certificate

Building Construction

Groups 5 & 6 of the zero rate schedule in the VAT Act 1994 allow zero rating for the construction of a building (see Notice 708 for details of when zero rating can be applied).

Schedule 9 of the VAT Act 1994 allows zero rating for land.

Note : A person must provide a certificate to a supplier to enable a transaction to be zero rated or a reduced rate of VAT charged if the building will be usedfor a relevant residential purpose (see para 14.6. Notice 708). A person must also providea certificate to a supplier to enable a transaction to be zero rated if the building willbe used solely for a relevant charitable purpose (see para 14.7. Notice 708).

If an incorrect certificate is issued to obtain relief from VAT as a zero rated supply orto certify that a reduced rate of VAT should be charged in relation to building construction (including for a relevant residential purpose or relevant charitable purpose)the issuer of the incorrect certificate will be liable to a civil penalty.

If a person certifies incorrectly that a land transaction should be zero rated the issuer of the incorrect certificate will be liable to a civil penalty.

Supplies of fuel and power

Group 1 of Schedule 7A to the VAT Act 1994 allows a reduced rate of VAT to be charged where there are domestic supplies of fuel or power.

The certificate issued in this instance entitles the issuer to receive supplies at the rate of 8% instead of 17.5%. If these certificates are issued incorrectly the issuer will be liable to a civil penalty.

Other reduced rate supplies

The other groups of Schedule 7A to the VAT Act 1994 also allow a reduced rate of VAT.

If a certificate to obtain a reduced rate of VAT is issued incorrectly, the issuer will be liable to a civil penalty.

Fiscal warehouse and warehouse certificates

VAT Act 1994 Section 18B and Section 18C allow relief from VAT in relation to fiscally warehoused goods and warehouse and fiscal warehouse services in certain circumstances, provided an appropriate certificate is provided.

If a certificate to obtain relief from VAT is issued incorrectly, the issuer will be liable to a civil penalty.

The penalty

This penalty is different from most other civil penalties because
 

  • it is charged at 100% of the tax and effectively provides for the recovery of an amount equal to the tax from the offender
  • in most cases the offender is unlikely to be registered for VAT.

There are no implications under the Human Rights Act for incorrect certificates for zero rating or lower rate supplies, see VCP10160.