HMRC has updated their factsheet on penalties for VAT, Excise and Landfill Tax wrongdoings. The penalty is based on the ‘potential lost revenue’ (PLR), with reductions being made for unprompted disclosure, non-deliberate behaviour and co-operation with HMRC officers.

VAT and Excise wrongdoings

HMRC charges penalties where a wrongdoing is committed and it results in a VAT, Excise Duty or Landfill Tax being due. Examples of wrongdoing include:

  • Charging VAT when you are not VAT registered
  • Charging VAT when you are not authorised to issue VAT invoices
  • Misusing oils or spirits to pay a lower duty – e.g., using red diesel in a road vehicle
  • Supplying oils or spirits in a way that defrauds HMRC of Excise Duty
  • Handling alcohol, tobacco or oils on which Excise Duty has not been paid or the duty has not been deferred

How much is the penalty?

HMRC will calculate how much tax would have been due, had the wrongdoing not occurred. This is called the potential lost revenue (PLR). It will then apply any reductions that it considers appropriate. Reductions are made for things like:

  • Non-deliberate behaviour, where you did not mean to commit a wrongdoing
  • Prompted disclosure, where you tell HMRC about the wrongdoing before you had any reason to believe that HMRC would find out about it
  • The quality of disclosure, where you help HMRC with their investigation, tell them about your wrongdoing, and give them access to your records
  • Telling HMRC about the wrongdoing sooner, rather than later

Other reductions may also be applied. For example, if you have been charged another penalty on the same tax or duty

Can I avoid a penalty?

There are no penalties for non-deliberate Landfill Tax wrongdoings.

Otherwise, you can only avoid a penalty if all of the following apply:

  1. You have a reasonable excuse for the wrongdoing; and
  2. The wrongdoing was not deliberate; and
  3. You told HMRC about the wrongdoing as soon as you could

HMRC has not specified what a reasonable excuse might be. It is, however, ‘something that stopped you from meeting a tax obligation on time which you took reasonable care to meet.’ This might be due to ‘circumstances outside your control or a combination of events’. HMRC also says that you should tell the officer about any health or personal circumstances that contributed towards you committing the wrongdoing.

Can I dispute the penalty?

If HMRC hands you a penalty for VAT, Excise or Landfill Tax wrongdoing and you dispute their findings, you have three options available:

  1. Ask the HMRC officer to take new information into account
  2. Ask to have your case reviewed by a different HMRC officer
  3. Pursue an appeal at an independent tribunal. You can appeal about both tax and penalties

Action must be taken within 30 days. If you fail to do so and you do not pay the penalty, then interest may be added.

Could an officer of a company be liable?

A company officer may have to pay some or all of the penalty, if the penalty arose because of their actions and either of the following applies:

  • They have gained or attempted to personally gain from a deliberate wrongdoing; and/or
  • The company is insolvent, or HMRC suspects that it is about to become insolvent

A criminal investigation may also be pursued if you give HMRC information that you know to be false, or you intentionally misrepresent your tax position.

HMRC compliance checks

If HMRC conducts a compliance check which leads to allegations of wrongdoing, we recommend that you contact us at Altion Law. You are legally entitled to instruct a legal representative. It is in your best interests to act on this right. We specialise in HMRC investigations and know how to secure a positive outcome on your behalf.

If you would like to have a free confidential discussion with a member of our team, please either make a Free Request For Call Back or call us directly on 01908 414990 and we will be pleased to help you.