Tag Archives: vat-penalties

VAT: Personal Liability Notices

By   16 December 2024
0

A Personal Liability Notice (PLN) can be issued by HMRC to a company’s director(s) to transfer the liability to pay VAT or a VAT penalty from the company to an individual. A PLN can also be issued to a member of an LLP.

When a PLN is issued

An officer or officers of a company may be personally liable to pay all or part of the company penalty where:

  • a company is liable to a penalty for a deliberate wrongdoing and
  • the wrongdoing is attributable to the deliberate action of an officer or officers of the company

Additionally, one of the two circumstances below must also apply

  • the officer gained or attempted to gain personally from the wrongdoing, or
  • the company is insolvent or likely to become insolvent

Any grounds for suspicion that the company may become insolvent should to be supported by evidence, for example, where there are cash flow problems, insufficient assets to cover liabilities, or evidence of phoenixism.

An officer’s liability to pay a penalty also applies to inaccuracy penalties.

Liable persons

The company officers are known in HMRC guidance as “liable officers”. These include:

  • elected officers
  • managers
  • directors
  • company secretary
  • any other person managing or purporting to manage any of the company’s affairs.

LLP officers are members.

A PLN’s power gives HMRC the right to recover all or part of the penalty from the liable officer rather than the company/LLP itself.

Where there is more than one deliberate wrongdoing, each deliberate wrongdoing must be considered separately for the purpose of establishing whether it should be attributed to an officer or officers.

Wrongdoings

There are four types of wrongdoings:

  • the issue of an invoice showing VAT by an unauthorised person
  • misuse of a product so that it attracts a higher rate of excise duty
  • the handling of goods on which payment of excise duty is outstanding
  • knowingly disposing of, or causing or permitting the disposal of, material at an unauthorised waste site

The wrongdoing must arise from the deliberate action of an officer of the company.

Personal gain

Once HMRC has attributed the deliberate wrongdoing to one or more company officers it must consider whether any of the officers, by fact or implication, have gained or attempted to gain personally from the wrongdoing. It is sufficient to show that each officer has gained or attempted to gain. It will not however always be possible to establish the full extent to which each officer has gained or attempted to gain, in which case HMRC would issue the PLN based on best judgment of the amount they attempted to gain personally, eg:

  • the officer may accept that there was an actual or attempted personal gain from a deliberate wrongdoing that can be attributed to them, or
  • it may be clear from business records or the officer’s lifestyle that they gained or attempted to gain personally from the results of the deliberate wrongdoing

Appeals

A liable officer can appeal against

  • a decision to pursue them for all or part of the penalty assessed on the company, as set out in the PLN, including whether the penalty is attributable to them, and
  • the amount of the penalty HMRC has allocated to them
  • They cannot however appeal against a decision that they have gained or attempted to gain personally from the deliberate wrongdoing, or that the company is likely to go into liquidation

PLNs are subject to the same procedures as company penalties.

Legislation

Finance Act 2008, Schedule 41: Penalties: failure to notify and certain VAT and Excise wrongdoing.

VAT: New HMRC Tax Agents Handbook

By   11 November 2024
0

On 1 November 2024 HMRC published a new handbook for agents acting on behalf of their clients in tax matters.

The handbook contains information to help tax agents and advisers; find guidance, use HMRC’s services and contact HMRC.

 

HMRC is trialling this manual as an alternative to the collection of linked guidance on the tax agents and advisers: detailed information page. It covers:

Tax agents have the right to represent their clients in appeals and penalty proceedings, ensuring that their clients’ interests are effectively advocated.

 

HMRC internal manual: VAT Assessments and Error Correction update

By   21 October 2024
0

HMRC’s manual VAT Assessments and Error Correction was updated on 15 October 2024.

This internal guidance is for HMRC inspectors (but is equally useful for advisers) covers assessments and error correction. The amendments apply mainly to General assessment procedures: Importance of avoiding delay.

The manual covers:

  1. Making Tax Digital for Business (MTD) – how to deal with MTD customers
  2. Powers of assessment
  3. VAT assessments
  4. Error correction for VAT
  5. How to assess and correct
  6. “VALID” computer printouts
  7. Demand for VAT
  8. Remission of tax

It also refers to for the most up-to-date guidance on reasonable excuse CH160000.as a defence against penalties and interest.

More on:

How to avoid MTD penalties

Disclosure of Avoidance Schemes – new rules

New HMRC guidance on error reporting

New online service for error correction

Error Disclosure under £10,000 – Draft Letter To HMRC

 

 

 

What is a VAT Loan? – Business finance

By   8 August 2024
0

Although, ideally, a business puts aside the VAT it collects from its customers (output tax charged) to pay its monthly, quarterly, or annual VAT bill, cashflow management can be difficult, especially for small or seasonal businesses with limited cash reserves. There are some things a business can do to mitigate the impact of VAT and one of these is a VAT loan.

Failure to pay VAT on time can lead to penalties and interest which could add to a business’ financial woes.

A VAT loan is a product which provides a short-term financing option to pay VAT on time. The loan covers the VAT amount due during each payment period, which allows a business to spread the VAT cost over a longer time instead of paying it up front in one hit.

Furthermore, there is no need to use up an existing bank facility. A VAT Loan gives a business an alternate financial option to utilise.

How it works

A business can apply for a VAT loan from a bank or other lender. It is usually deemed to be a secured business loan so assets must be put up as security. Once approved, the lender will pay it directly to HMRC. Repayment periods are typically between three months and a year.

The whole process does not usually take long as it is designed to be more streamlined than a standard loan. The money is usually paid to HMRC within days. Evidence of turnover and good credit history will be required, along with usual proof of ID and bank statements etc. Sometimes additional arrangement charges are made along with the interest.

Eligibility

A business must:

VAT bridging loans

There are generally two types of VAT loan: a standard VAT loan and VAT bridging loans. VAT bridging loans differ in that they are specifically a short-term option to assist a business bridge its cashflow gap between making a VAT payment, eg; for a significant purchase, usually property, and recovering this amount from HMRC as a repayment, which can take months (depending when the purchase was made in a VAT quarter and how quickly HMRC make the refund).

Finding a lender

 It is usually advisable to look for a lender who offers VAT loans specifically and compare interest rates, terms, fees etc.

A quick Google produces many VAT loan products to compare.

Downsides

As VAT loans are short term, the interest rates are often higher than other business loans. Additionally, the loan repayments and fees increase strains on a business’ financial commitments.

 

This is a brief overview on the mechanism and does not constitute financial advice. Businesses should seek their own financial counsel. Before signing any loan agreements, you should seek independent financial advice to better understand if a VAT loan you are considering is the right one for you.

VAT: Change of a business’ registration details – Form VAT484

By   7 March 2023
0
Change in VAT registration details
New HMRC guidance explains how to use form VAT484 to change business details.

You can use this form to change a business’:

  • contact details
  • bank details
  • return dates
  • and if a new person takes over VAT responsibilities

If you take over someone else’s VAT responsibilities

You must use the form VAT484 to tell HMRC within 21 days if you take over the VAT responsibilities of someone who has died or is ill and unable to manage their own affairs.

You must include the details of the date of death or the date the illness started.

Failure to notify HMRC of changes may lead to penalties via The VAT Act 1994, section 69.

VAT: Updated guidance on deliberate behaviour

By   21 February 2023
0

HMRC has published updated guidance on deliberate behaviour. It clarifies the definition of these actions in respect of extended time limits.

What is deliberate behaviour?

A deliberate inaccuracy in a document occurs when a person (or another person acting on behalf of that person) knowingly gives HMRC an inaccurate document.

“A person who submits a document containing a deliberate inaccuracy might assert that they did not intend to cause a loss of tax. For the purpose of assessing this loss of tax, the person or any persons acting on their behalf will be treated as deliberately causing the loss of tax if they consciously intended to mislead HMRC”.

Examples

  • knowingly failing to record all sales
  • describing transactions inaccurately or in a way likely to mislead
  • lodging a VAT return that includes a figure of net VAT due that is too low because the person does not have the cash at that time to pay the full amount, and later telling HMRC the true figure when he has the funds to pay
  • similarly declaring less tax due for aggregates levy, climate change levy, landfill tax or excise duty because the person does not have the funds at that time to pay the full amount

(This list is not exhaustive and HMRC provide more examples in the guidance).

Why is it important?

Mainly, there are different time limits within which HMRC can take action.

A 20 year time limit applies where tax has been underdeclared, or over-repaid, as a result of a deliberately inaccurate return or other document. The normal cap is four years.

Other action

Although HMRC can make assessments to recover any tax lost, it also have a criminal investigation policy and will refer the most serious cases for consideration of criminal proceedings where appropriate.

If you or your clients are subject to an investigation, please seek professional advice immediately. There is a dark side to VAT.

VAT: Increase in interest rates

By   11 January 2023
0

As a consequence of the change in the Bank Of England base rate from 3% to 3.5%, HMRC’s interest rates for late payment and repayment will also increase.

These changes will come into effect on:

  • 26 December 2022 for quarterly instalment payments
  • 6 January 2023 for non-quarterly instalments payments

The HMRC publication Information on the interest rates for payments will be updated shortly.

HMRC interest rates are set in legislation and are linked to the Bank of England base rate. Late payment interest is set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit, or “minimum floor” of 0.5%.

VAT: How to remove penalty points under the new system

By   9 January 2023
0

HMRC has introduced new penalty and interest rules for late returns and payments from 1 January 2023. Details here.

On 4 January 2023 HMRC published guidance on how to remove these points to avoid a penalty. This is particularly important if a business has reached the penalty point threshold.

The penalty thresholds are:

  • annual returns – 2 points
  • quarterly returns – 4 points
  • monthly returns – 5 points

If a business is at the limit and has the maximum points allowed for its accounting periods, it can remove them by meeting two conditions which are:

  • to complete a period of compliance, submitting all returns by the deadline
  • to submit all outstanding returns for the previous 24 months

The guidance sets out how these tests are calculated and applied.

VAT: TOGC and deliberate errors – The Apollinaire case

By   19 December 2022
0

Latest from the courts

In the First -Tier Tribunal (FTT) case of Apollinaire Ltd and Mr Z H Hashmi the issues were:

  • whether the appellant’s input tax claim was valid
  • were the director’s actions “deliberate”
  • was a Personal Liability Notice (PLN) appropriate?

Background

Mr Hashmi (the sole director of Apollinaire) asserted that he sold his business, Snow Whyte Limited to a Mr Singh as a going concern, together with the trading name “Benny Hamish”. The purchase price was never paid.  He alleged that Mr Singh traded for approximately one month and then sold stock worth £573,756 to Apollinaire. The appellant submitted an input tax claim for the purchase of the goods. HMRC refused to make the repayment and raised penalties for deliberate errors. HMRC subsequently issued a PLN to Mr Hashmi.

Issues

Initially HMRC stated that Mr Singh may not have existed, that there was no sale of Snow Whyte Ltd by Mr Hashmi to Mr Singh and similarly, no sale back to Mr Hashmi. However, this submission was later amended to argue that Mr Hashmi controlled the movement of the stock at all times and that the issue was whether the transfer of stock from Snow Whyte Limited was a Transfer Of a Going Concern (TOGC), whether or not Mr Singh existed.

Mr Hashmi appealed, contending that the transactions took place as described to HMRC.

Decision

Unsurprisingly, given Mr Hashmi’s previous history of dissolving companies, but continuing to trade under the same name as those companies (listed at para 14 of the decision) and failing to submit returns and payments, the FTT accepted HMRC’s version of events. Further, there was insufficient evidence to support the transactions (if they took place) and the judge fund that the appellant’s evidence was not credible. If the events did take place, there was no input tax to claim as all the tests (where relevant here) for a TOGC (Value Added Tax (Special Provisions) Order 1995, Regulation 5) were met:

  • the assets were sold as a business as a going concern
  • the assets were used by the transferee in carrying on the same kind of business
  • there was no break in trading
  • both entities traded under the same name
  • both entities operated from the same premises
  • both entities had the same employees and tills

The appeal was dismissed.

Penalties

The FTT further decided that HMRC’s penalties and PLN [Finance Act 2007, Schedule 24, 19(1)] were appropriate. The claim for input tax was deliberately overstated and that Mr Hashmi was the controlling mind of both entities and was personally liable as the sole company director of Apollinaire.

HMRC relied on case law: Clynes v Revenue and Customs[2016] UKFTT 369 (TC) which reads as follows:

“On its normal meaning, the use of the term indicates that for there to be a deliberate inaccuracy on a person’s part, the person must have acted consciously, with full intention or set purpose or in a considered way…

…Our view is that, depending on the circumstances, an inaccuracy may also be held to be deliberate where it is found that the person consciously or intentionally chose not to find out the correct position, in particular, where the circumstances are such that the person knew he should do so.” 

Commentary

This case is a reverse of the usual TOGC disputes as HMRC sought to establish that there was no taxable supply so no VAT was due. It underlines that:

  • care should always be taken with applying TOGC treatment (or appreciating the results of failing to recognise a TOGC)
  • penalties for deliberate errors can be significant and swingeing
  • directors can, and are, held personally responsible for actions taken by a company

VAT: New penalties and interest for late returns and payments

By   4 November 2022
0

Further to my article on the introduction of changes to penalties for late filing and payments of VAT and follow up guidance, the forthcoming introduction on 1 January 2023 has focussed attention on how they will impact certain businesses.

Late returns

Many businesses who have had to deal with the “old” default surcharge regime realised that it could be disproportionate and create unfair outcomes. The new penalties are, in my view, fairer, and, the changes bring some welcome features and some which are less so.

The good news is that the introduction of the new rules mean that businesses will start with a clean slate, regardless of their position under the default surcharge mechanism – there is no carry over form one set of rules to another.

However, for the first time, late rendering of returns can incur penalties and interest if the returns are either:

  • nil, or
  • repayment

In the previous regime when “non-payment” returns were filed late, this did not trigger a default.

Nil returns

Businesses which did not carry out any activity in the prescribed period, eg; intending traders, businesses temporary closed, or at the end of their life will have to recognise that a late nil return will now trigger points.

Repayment returns

Again, businesses which typically submit repayment returns, such as; new build constructors, exporters, and any business supplying zero rated goods or services will have to recognise tardy submissions will now affect them.

We understand that HMRC is aware of the impact on this sector and is planning to communicate with these businesses to make them aware of the new changes.

An additional point;  from 1 March 2021 the Domestic Reverse Charge was introduced for the construction industry. As a result, an increased number of builders found themselves in a repayment position and will now need to ensure timely returns to avoid penalties.

Late payments – penalties and interest

The new late payment penalties regime will replace the default surcharge, which served as a combined late submission and late payment sanction.

Under the new rules, there will be two separate late payment penalties.

The first penalty has two separate elements:

  1. 2% of the VAT unpaid at day 15
  2. a further 2% of the VAT unpaid at day 30

The second penalty is triggered from day 31. This is charged daily and is based on an annual rate of 4% of any outstanding amount. 

If all outstanding VAT is paid within 15 days of the due date, no late-payment penalty will arise. Although here will however still be late payment interest.

Interest

From 1 January 2023, HMRC will charge late-payment interest from the day a VAT payment is overdue to the day the VAT is paid, calculated at the Bank of England base rate plus 2.5%.

Time-to-Pay arrangements

HMRC offers the option of requesting a Time To Pay arrangement. This will enable a business to stop a penalty from accruing any further by approaching HMRC and agreeing a schedule for paying their outstanding tax.

Period of familiarisation

HMRC say that to give businesses time to get used to the changes, it will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if the tax is paid in full within 30 days of the payment due date.

Appeals

It is anticipated that the number of appeals against late filing/payments will be reduced because of the more proportional approach of the new rules. However, it is still possible to appeal if a taxpayer considers the imposition of penalties and interest is unfair. An appellant needs a reasonable excuse to succeed.

Action

Advisers should ensure that clients affected by the new rules, specifically repayment business and those submitting nil returns, are aware of the impact. I know that a lot of these are habitual late filers and some “save up” returns for when they need a cash injection.

It will also be prudent for advisers to monitor penalty points accrued. We understand that HMRC is looking at how this information could be made available to agents and taxpayers. We expect more details about this in the coming months, including how software can be used to display points.

Repayment supplement

The new system may be fairer, however, the withdrawal of the repayment supplement is not! More details here. (I am still quite cross!)