V5.360I Penalty for participating in VAT fraud
In the Chancellor's 2016 Autumn Statement1, it was announced that “the government will legislate in Finance Bill 2017 to introduce a new and more effective penalty for participating in VAT fraud. It will be applied to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. The penalty will improve the application of penalties to those facilitating orchestrated VAT fraud. The new penalty will be a fixed rate penalty of 30% for participants in VAT fraud. This will be implemented following Royal Assent of the Finance Bill 2017.” In the event, the penalty provisions were withdrawn from the Bill following the announcement of a general election on 8 June 2017, but reintroduced in Finance (No 2) Act 2017, and have effect from 16 November 2017.
Reason for penalty
FA 2007 Sch 24 already contains provisions for penalising “errors”, both careless and deliberate (see V5.345). However, the problem for HMRC was that in a significant number of cases, they would have liked to raise a penalty for Missing Trader Inter-Community (“MTIC”) fraud. They would have disallowed an input tax deduction on the basis that the person concerned knew, or should have known, that the transactions in which he was involved were connected with VAT fraud (“the knowledge principle”). But having been able to hedge their bets on the assessment by not distinguishing between knowledge and means of knowledge, they could not do the same with a
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