Can you be charged a VAT Penalty where you’re caught up in a fraud?

Last autumn HMRC published a consultation document asking for views on a new penalty for participating in VAT fraud.  The Budget confirmed that the new penalty is due to come into force when the Finance Bill receives Royal Assent later this year.

Fraud message on paper torn ripped opening

But I’ve not been fraudulent!

This is a significant development because the new penalty will apply not only to those perpetuating a fraud but also to those unwittingly caught up in the arrangements where they knew, or ought to have known that fraud was involved. This is known as the “Knowledge Principle”

Not surprisingly representations have been made as to the inherent unfairness of these proposals because in practical terms it means that HMRC will be able to penalise taxpayers who unwittingly become involved in a fraud perhaps through no fault of their own.

Naming & Shaming

HMRC have also proposed “naming and shaming” company officers where the tax loss is in excess of £25,000 so there could be reputational risk as well as financial implications.

It will be interesting to see how HMRC will conclude a taxpayer ought to have known that the arrangements were fraudulent so rest assured, we will be looking at the legislation very carefully to see how we can help our clients.

Please don’t hesitate to contact us if you have any concerns relating to this penalty or indeed any other VAT penalty.

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