If a company has made a deliberate error on a tax return (either a ‘deliberate not concealed’ error, or one that is ‘deliberate and concealed’), HMRC can reallocate up to 100% of the penalty to the individual directors.
Check out Neil Warren’s recent article on AccountingWeb where he discusses a ruling of the First Tier Tribunal about two company directors who were each issued with a personal liability notice for £89,306.
The penalty was originally issued because the company claimed VAT on fraudulent invoices from a “supplier” who didn’t declare the VAT to HMRC. The Tribunal agreed that the company didn’t exercise anything like enough due diligence and should have identified that the invoices were fraudulent; if for no other reason that the deal was too good to be true!
Missing trader fraud
This is quite an extreme situation, but it’s a good lesson for company directors if a business makes mistakes on VAT returns. Directors should ensure that their company has proper due diligence procedures in place AND make sure that the procedures are followed.
The subject of missing trader fraud has always been a major source of revenue loss for HMRC. The department is spending more and more resources to identify, penalise or even prosecute those involved. See their updated guide to “VAT: Missing trader fraud”, issued in April this year. If you think you or your clients may have been unwittingly involved in such situations, you should contact HMRC as soon as possible.
In the meantime, whether you’re a company director, an accountant or own your own business and need help with day to day VAT issues from management services to directors’ car costs, keep an eye out for my book “VAT on inter-company services and management charges” which will be available in print from Amazon this month.