VAT civil evasion penalty

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • VAT civil evasion penalty
  • Introduction
  • When will a person be liable to a civil evasion penalty?
  • When is an ‘act of evasion’ deemed to take place?
  • Burden and standard of proof
  • Interaction between the civil evasion penalty and the current penalties under FA2007, Sch 24
  • Calculating the civil evasion penalty
  • Apportioning the penalty
  • Assessing the penalty
  • Appeals and reconsiderations


This guidance note provides an overview of the VAT civil evasion penalty which could be imposed on a taxpayer.


It is important to note that revised penalty legislation was introduced in FA 2007, Sch 24 and FA 2008, Sch 41, and one of these penalties will normally be levied by HMRC rather than the civil invasion penalty. The following penalties could be imposed by HMRC under the revised rules:

  • penalties for Failure to Notify (see the Penalties - failure to notify - overview guidance note)
  • penalties for Inaccuracies (see the Penalties for inaccuracies - overview guidance note)
  • penalties for VAT and Excise Wrongdoing (see the Penalties - VAT and excise wrongdoing guidance note)

If the taxpayer has failed to submit a VAT return and the their intention was to evade VAT, and their conduct involves dishonesty, then the person may still be liable to a civil evasion penalty under VATA 1994, s 60.

A penalty for evading VAT was introduced in FA 1985, s 13 (subscription sensitive) for cases where it can be proven that the sole proprietor, partnership’s or company’s conduct involves dishonesty.

The civil treatment of VAT evasion is an alternative to commencing with criminal proceedings but it is not intended to replace criminal proceedings if these are deemed to be more appropriate. The Court of Appeal has held in Han & Yau v. Commissioners of Customs and Excise (2001) EWCA Civ 1048 (subscription sensitive); (2001) 1 W.L.R. 2253 that the civil evasion penalty should to be classified as equivalent to a criminal matter for the purposes of the European Convention on Human Rights, Article 6, there is a separate criminal offence of fraudulent evasion of VAT under VATA 1994, s 72.

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