VATF45190 - Basic interventions: matters to consider when determining whether to use a civil intervention: assessments and penalties: raising penalties in particular circumstances: mitigation and calculation

The s69C penalty is charged at a rate of 30%. The penalty may be mitigated under s70 VATA1994.

Mitigation should be considered as follows (percentages are fractions of the maximum penalty):

50%+ of transactions affected

If more than 50% of the trader’s transactions by value are the subject of a Kittel/Mecsek denial, then no mitigation should be given at all. This test should be applied to each period. No mitigation should be given for any period if the test is failed for one or more periods.

Seriousness of behaviour

Do not allow mitigation for less serious behaviour. In particular you should not attempt to distinguish between ‘actual knowledge’ and ‘means of knowledge’. Even where it is clear that there was no actual knowledge, you should not allow any mitigation, or accept the argument that such a case is less serious and therefore deserves a lower penalty.

The s69C penalty is designed so as not to require any consideration by HMRC of the seriousness of the trader’s underlying behaviour.

The maximum 30% penalty is set at the same level as the penalties for carelessness or for non-deliberate failure to notify. It is not therefore necessary to reduce it to recognise the less serious end of ‘knew or should have known’. All traders charged this penalty benefit from the lower maximum, whether or not they had actual knowledge of the connection with VAT fraud.

The law does allow for mitigation to take account of acting in good faith, or of there being no actual loss of tax. But the ‘knew or should have known’ test, and the need for a connection with VAT fraud, mean that it will be exceptionally unlikely that either of these factors could apply.

Disclosures

Mitigation for disclosures should reward traders who make meaningful admissions which save HMRC time and effort. The sooner and more complete the admission, the greater the mitigation you can give.

It is rare for a trader to disclose that a denial is required before HMRC discovers it. If such a disclosure is made before HMRC is in a position to establish it for themselves, and if the consequent penalty is also accepted, then up to 50% mitigation is appropriate.

Allow up to 20% for the trader who did not make any admission before you have carried out your fact-finding and analysis, but who makes it clear that they accept HMRC’s findings after you have found that a denial is required.

Allow 0% where the trader does not positively accept that your denial action is correct.

Assisting the intervention

Up to 30%. Whether or not the trader accepts the HMRC denial of input tax or zero rate, mitigation should be allowed to the extent that there has been helpful co-operation which has saved time for HMRC. This should take account of:

  • Provision of records
  • Attendance at meetings
  • Explanations of what happened, to the extent you can accept them as helpful

Prompt co-operation will earn more mitigation than late co-operation.

Approval should be sought from FIS, National Penalty Team (FIS) before any mitigation is allowed. (In many cases, following the above guidance will mean that no mitigation is allowed.)