Major changes to penalties for VAT fraud expected next year

By Jayne Harrold and Julian Balson

HMRC have recently consulted on a new penalty regime for VAT fraud. Major changes to the regime are expected to appear in next year’s Finance Bill.

The proposed new penalties would significantly increase the stakes for businesses caught up in VAT fraud cases by enabling HMRC to issue penalties alongside the VAT restriction, introducing the possibility of company officers being made liable for those penalties and naming and shaming taxpayers.

Jayne recently spoke to City AM on this issue:

“Businesses who "should have known" about VAT fraud are often inadvertently drawn into fraudulent supply chains and perceive themselves to be as much the victim of the VAT fraud as HMRC. The consequence of changes to the nature of VAT fraud over recent years mean that large and legitimate businesses are now more likely than they were historically to find themselves purchasing from, or selling to, supply chains leading to the fraudulent evasion of VAT. As a result many businesses are now being deemed a participant in VAT fraud and therefore facing VAT restrictions from HMRC. In light of this, we consider that such businesses may well be impacted by the new penalties to a greater extent than those who are responsible for or mastermind the VAT fraud”.

Julian adds the proposed naming and shaming, personal liability for company officers and flat rate penalty applying to businesses that “should have known” about the VAT fraud significantly increases the stakes for affected businesses. This could result in an increase in the number of taxpayers who see little choice but to fight their case in the courts, which would defeat HMRC’s objective of decreasing the amount of litigation on VAT fraud.

Whilst the exact scope of the changes are yet to be confirmed, prudent taxpayers would be well advised to start reviewing the controls and processes they currently have in place to avoid falling foul of the new regime when it comes into force.

A link to the consultation is here.

For further information please contact Jayne Harrold Indirect Taxes specialist, Julian Balson, or your usual PwC advisor.

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