Consultation

A consultation was proposed in the 2016 Budget on the introduction of a new penalty for businesses that participate in VAT fraud. Now HMRC has announced that views are sought on; whether there is a case for a new penalty, its structure and to whom it should apply.  The intended changes will require amendment to Schedule 24 of the Finance Act 2007.  The main target of these proposed new measures is MTIC (Missing Trader Intra-Community) fraud.

Full details of the consultation paper here

Penalty principles

It may be worth reviewing HMRC’s view on the principles of applying a penalty, which they state are;

• The penalty regime should be designed from the customer perspective, primarily to encourage compliance and prevent non-compliance. Penalties are not to be applied with the objective of raising revenues.

• Penalties should be proportionate to the offence and may take into account past behaviour.

• Penalties must be applied fairly, ensuring that compliant customers are (and are seen to be) in a better position than the non-compliant.

• Penalties must provide a credible threat. If there is a penalty, we must have the operational capability and capacity to raise it accurately, and if we raise it, we must be able to collect it in a cost-efficient manner.

• Customers should see a consistent and standardised approach. Variations will be those necessary to take into account customer behaviours and particular taxes.

Consultation Process

It may be an appropriate time to look at what the consultation process is and how it works.  This may helpfully be summarised (by HMRC) as:

There are 5 stages to tax policy development:

• Stage 1 Setting out objectives and identifying options.

• Stage 2 Determining the best option and developing a framework for implementation including detailed policy design.

• Stage 3 Drafting legislation to effect the proposed change.

• Stage 4 Implementing and monitoring the change.

• Stage 5 Reviewing and evaluating the change.

The closing date for comments on this consultation is 11 November 2016.

Comment

Putting to one side the minor irritation of taxpayers being called customers (a bête noire of mine I’m afraid) it is difficult to argue with the above principles and any attempt to prevent or deter VAT fraud is to be welcomed, as long as it does not impact on innocent parties and HMRC apply any such penalty in an even-handed manner. As a taxpayer in a personal and business capacity, I welcome any measures that may result in my tax bill being increased to cover revenue lost to fraud!

Action

Of course, please respond to HMRC should you feel that you should make your views known.  The consultation is open to businesses, individuals, legal firms, accountants, and other interested parties.

We occasionally come across situations where innocent parties have been inadvertently been caught up in fraudulent supply chains. Please contact us for advice on planning that may be put in place to avoid this position and how we can assist if HMRC are making enquiries. As always in VAT, it always pays to be proactive to ensure that processes and structures in place are robust and are demonstrably so.