Press release: Plan to ignore taxpayer knowledge in proposed VAT penalty alarms tax organisation

The Association of Taxation Technicians (ATT) is concerned by a proposal to introduce a new penalty for businesses whose transactions are connected with VAT fraud.

The ATT has responded to a government proposal1 to introduce a new civil penalty for businesses in relation to involvement with VAT fraud. The ATT is concerned that the proposed civil penalty would apply equally without HMRC having to distinguish between whether the business or individual actually knew of the connection with the VAT fraud or whether they simply should have known.

Michael Steed, Co-chair of the ATT’s Technical Steering Group, said:

“We fully support the premise that tax cheats should be penalised but we do not see the proposed new penalty as either necessary or proportionate. Our first concern is that the consultation does not set out why HMRC finds the existing penalty legislation to be ineffective. Our second and more fundamental concern is that the Government appears to value administrative convenience for HMRC above the principle that tax penalties should fit the behaviour that gives rise to them.

“Modern tax penalty legislation draws very clear distinctions between different behaviours which lead to an inaccuracy in a return or document. Lower penalties apply where the behaviour was carelessness, higher penalties apply where the error was deliberate and the highest apply where the behaviour involved concealment. For reasons which are not fully explained in the consultation, HMRC is seeking to move away from these important and logical distinctions. The proposal envisages the same penalty being charged whether someone had intentionally masterminded a VAT fraud or at the other extreme had been insufficiently suspicious of a business opportunity which they should have realised was too good to be true.

“We completely understand the importance of HMRC being able to challenge VAT fraud effectively and efficiently and for the tribunals and courts to be able to deal with the cases in a cost-efficient manner. However, that must not erode the principle that tax penalties should be proportionate to the behaviour of the individuals involved. If current legislation needs reform, that needs to be done without overriding the well-founded principles behind the existing penalty provisions.”

Notes for editors

  1. The proposal is contained in a HMRC consultation document which can be found here.
  2. The ATT’s submission can read in full here.
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