Finance Bill

House of Commons

Session 2007 - 08
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 41 — Penalties: failure to notify and certain VAT and excise wrongdoing
400

      (2)
A penalty is payable by a person (“P”) where P supplies a product knowing
that it will be used in a way which enables HMRC to assess an amount as
duty due from another person under a relevant excise provision.
Handling goods subject to unpaid excise duty
4     (1)
A penalty is payable by a person (P) where—
5
(a)
after the excise duty point for any goods which are chargeable with
a duty of excise, P acquires possession of the goods or is concerned
in carrying, removing, depositing, keeping or otherwise dealing with
the goods, and
(b)
at the time when P acquires possession of the goods or is so
10
concerned, a payment of duty on the goods is outstanding and has
not been deferred.
      (2)
In sub-paragraph (1)—
“excise duty point” has the meaning given by section 1 of F(No.2)A
1992, and
15
“goods” has the meaning given by section 1(1) of CEMA 1979.
Degrees of culpability
5     (1)
A failure by P to comply with a relevant obligation is—
(a)
“deliberate and concealed” if the failure is deliberate and P makes
arrangements to conceal the situation giving rise to the obligation,
20
and
(b)
“deliberate but not concealed” if the failure is deliberate but P does
not make arrangements to conceal the situation giving rise to the
obligation.
      (2)
The making by P of an unauthorised issue of an invoice showing VAT is—
25
(a)
“deliberate and concealed” if it is done deliberately and P makes
arrangements to conceal it, and
(b)
“deliberate but not concealed” if it is done deliberately but P does not
make arrangements to conceal it.
      (3)
The doing by P of an act which enables HMRC to assess an amount of duty
30
as due from P under a relevant excise provision is—
(a)
“deliberate and concealed” if it is done deliberately and P makes
arrangements to conceal it, and
(b)
“deliberate but not concealed” if it is done deliberately but P does not
make arrangements to conceal it.
35
      (4)
P’s acquiring possession of, or being concerned in dealing with, goods on
which a payment of duty is outstanding and has not been deferred is—
(a)
“deliberate and concealed” if it is done deliberately and P makes
arrangements to conceal it, and
(b)
“deliberate but not concealed” if it is done deliberately but P does not
40
make arrangements to conceal it.
Amount of penalty: standard amount
6     (1)
The penalty payable under any of paragraphs 1, 2, 3(1) and 4 is—

Finance Bill
Schedule 41 — Penalties: failure to notify and certain VAT and excise wrongdoing
401

(a)
for a deliberate and concealed act or failure, 100% of the potential lost
revenue,
(b)
for a deliberate but not concealed act or failure, 70% of the potential
lost revenue, and
(c)
for any other case, 30% of the potential lost revenue.
5
      (2)
The penalty payable under paragraph 3(2) is 100% of the potential lost
revenue.
      (3)
Paragraphs 7 to 11 define “the potential lost revenue”.
Potential lost revenue
7     (1)
“The potential lost revenue” in respect of a failure to comply with a relevant
10
obligation is as follows.
      (2)
In the case of a relevant obligation relating to income tax or capital gains tax
and a tax year, the potential lost revenue is so much of any income tax or
capital gains tax to which P is liable in respect of the tax year as by reason of
the failure is unpaid on 31 January following the tax year.
15
      (3)
In the case of a relevant obligation relating to corporation tax and an
accounting period, the potential lost revenue is (subject to sub-paragraph
(4)) so much of any corporation tax to which P is liable in respect of the
accounting period as by reason of the failure is unpaid 12 months after the
end of the accounting period.
20
      (4)
In computing the amount of that tax no account shall be taken of any relief
under subsection (4) of section 419 of ICTA (relief in respect of repayment
etc of loan) which is deferred under subsection (4A) of that section.
      (5)
In any case where the failure is a failure to comply with the obligation under
paragraph 2(4) of Schedule 11 to VATA 1994, the potential lost revenue is the
25
value added tax on the acquisition to which the failure relates.
      (6)
In the case of any other relevant obligation relating to value added tax, the
potential lost revenue is the amount of the value added tax (if any) for which
P is, or but for any exemption from registration would be, liable for the
relevant period (see sub-paragraph (7)), but subject to sub-paragraph (8).
30
      (7)
“The relevant period” is—
(a)
in relation to a failure to comply with paragraph 14(2) or (3) of
Schedule 1 to VATA, paragraph 8(2) of Schedule 3 to that Act or
paragraph 7(2) or (3) of Schedule 3A to that Act, the period beginning
on the date of the change or alteration concerned and ending on the
35
date on which HMRC received notification of, or otherwise became
fully aware of, that change or alteration, and
(b)
in relation to a failure to comply with an obligation under any other
provision, the period beginning on the date with effect from which P
is required in accordance with that provision to be registered and
40
ending on the date on which HMRC received notification of, or
otherwise became fully aware of, P’s liability to be registered.
      (8)
But the amount mentioned in sub-paragraph (6) is reduced—
(a)
if the amount of the tax mentioned in that sub-paragraph includes
tax on an acquisition of goods from another member State, by the
45
amount of any VAT which HMRC are satisfied has been paid on the

Finance Bill
Schedule 41 — Penalties: failure to notify and certain VAT and excise wrongdoing
402

supply in pursuance of which the goods were acquired under the
law of that member State, and
(b)
if the amount of that tax includes tax chargeable by virtue of section
7(4) of VATA 1994 on a supply, by the amount of any VAT which
HMRC are satisfied has been paid on that supply under the law of
5
another member State.
      (9)
In the case of a relevant obligation under any provision relating to insurance
premium tax, aggregates levy, climate change levy, landfill tax or air
passenger duty, the potential lost revenue is the amount of the tax (if any)
for which P is liable for the period—
10
(a)
beginning on the date with effect from which P is required in
accordance with that provision to be registered, and
(b)
ending on the date on which HMRC received notification of, or
otherwise became fully aware of, P’s liability to be registered.
     (10)
In the case of a failure to comply with a relevant obligation relating to any
15
other tax, the potential lost revenue is the amount of any tax which is unpaid
by reason of the failure.
8
In the case of the making of an unauthorised issue of an invoice showing
VAT, the potential lost revenue is the amount shown on the invoice as value
added tax or the amount to be taken as representing value added tax.
20
9
In the case of—
(a)
the doing of an act which enables HMRC to assess an amount of duty
as due under a relevant excise provision, or
(b)
supplying a product knowing that it will be used in a way which
enables HMRC to assess an amount as duty due from another person
25
under a relevant excise provision,

the potential lost revenue is the amount of the duty which may be assessed
as due.
10
In the case of acquiring possession of, or being concerned in dealing with,
goods the payment of duty on which is outstanding and has not been
30
deferred, the potential lost revenue is an amount equal to the amount of duty
due on the goods.
11    (1)
In calculating potential lost revenue in respect of a relevant act or failure on
the part of P no account is to be taken of that a potential loss of revenue from
P is or may be balanced by a potential over-payment by another person
35
(except to the extent that an enactment requires or permits a person’s tax
liability to be adjusted by reference to P’s.
      (2)
In this Schedule “a relevant act or failure” means—
(a)
a failure to comply with a relevant obligation,
(b)
the making of an unauthorised issue of an invoice showing VAT,
40
(c)
the doing of an act which enables HMRC to assess an amount of duty
as due under a relevant excise provision or supplying a product
knowing that it will be used in a way which enables HMRC to assess
an amount as duty due from another person under a relevant excise
provision, or
45
(d)
acquiring possession of, or being concerned in dealing with, goods
the payment of duty on which is outstanding and has not been
deferred.

Finance Bill
Schedule 41 — Penalties: failure to notify and certain VAT and excise wrongdoing
403

Reductions for disclosure
12    (1)
Paragraph 13 provides for reductions in penalties under paragraphs 1 to 4
where P discloses a relevant act or failure
      (2)
P discloses a relevant act or failure by—
(a)
telling HMRC about it,
5
(b)
giving HMRC reasonable help in quantifying the tax unpaid by
reason of it, and
(c)
allowing HMRC access to records for the purpose of checking how
much tax is so unpaid.
      (3)
Disclosure of a relevant act or failure—
10
(a)
is “unprompted” if made at a time when the person making it has no
reason to believe that HMRC have discovered or are about to
discover the relevant act or failure, and
(b)
otherwise, is “prompted”.
      (4)
In relation to disclosure “quality” includes timing, nature and extent.
15
13    (1)
Where a person who would otherwise be liable to a 100% penalty has made
an unprompted disclosure, HMRC shall reduce the 100% to a percentage,
not below 30%, which reflects the quality of the disclosure.
      (2)
Where a person who would otherwise be liable to a 100% penalty has made
a prompted disclosure, HMRC shall reduce the 100% to a percentage, not
20
below 50%, which reflects the quality of the disclosure.
      (3)
Where a person who would otherwise be liable to a 70% penalty has made
an unprompted disclosure, HMRC shall reduce the 70% to a percentage, not
below 20%, which reflects the quality of the disclosure.
      (4)
Where a person who would otherwise be liable to a 70% penalty has made a
25
prompted disclosure, HMRC shall reduce the 70% to a percentage, not
below 35%, which reflects the quality of the disclosure.
      (5)
Where a person who would otherwise be liable to a 30% penalty has made
an unprompted disclosure, HMRC shall reduce the 30%—
(a)
if the penalty is under paragraph 1 and HMRC become aware of the
30
failure less than 12 months after the time when tax first becomes
unpaid by reason of the failure, to a percentage (which may be 0%),
or
(b)
in any other case, to a percentage not below 10%,

which reflects the quality of the disclosure.
35
      (6)
Where a person who would otherwise be liable to a 30% penalty has made a
prompted disclosure, HMRC shall reduce the 30% —
(a)
if the penalty is under paragraph 1 and HMRC become aware of the
failure less than 12 months after the time when tax first becomes
unpaid by reason of the failure, to a percentage not below 10%, or
40
(b)
in any other case, to a percentage not below 20%,

which reflects the quality of the disclosure.

Finance Bill
Schedule 41 — Penalties: failure to notify and certain VAT and excise wrongdoing
404

Special reduction
14    (1)
If HMRC think it right because of special circumstances, HMRC may reduce
a penalty under any of paragraphs 1 to 4.
      (2)
In sub-paragraph (1) “special circumstances” does not include—
(a)
ability to pay, or
5
(b)
the fact that a potential loss of revenue from one taxpayer is balanced
by a potential over-payment by another.
      (3)
In sub-paragraph (1) the reference to reducing a penalty includes a reference
to—
(a)
staying a penalty, and
10
(b)
agreeing a compromise in relation to proceedings for a penalty.
Interaction with other penalties and late payment surcharges
15    (1)
The amount of a penalty for which P is liable under any of paragraphs 1 to 4
shall be reduced by the amount of any other penalty incurred by P, or any
surcharge for late payment of tax imposed on P, if the amount of the penalty
15
or surcharge is determined by reference to the same tax liability.
      (2)
If P is liable to a penalty under section 9 of FA 1994 in respect of a failure to
comply with a relevant obligation, the amount of any penalty payable under
paragraph 1 in respect of the failure is to be reduced by the amount of the
penalty under that section.
20
      (3)
Where penalties are imposed under paragraph 3(1) and (2) in respect of the
same act of use, the aggregate of the amounts of the penalties must not
exceed 100% of the potential lost revenue.
Assessment
16    (1)
Where P becomes liable for a penalty under any of paragraphs 1 to 4 HMRC
25
shall—
(a)
assess the penalty,
(b)
notify P, and
(c)
state in the notice the period in respect of which the penalty is
assessed.
30
      (2)
A penalty under any of paragraphs 1 to 4 must be paid before the end of the
period of 30 days beginning with the day on which notification of the
penalty is issued.
      (3)
An assessment—
(a)
shall be treated for procedural purposes in the same way as an
35
assessment to tax (except in respect of a matter expressly provided
for by this Act),
(b)
may be enforced as if it were an assessment to tax, and
(c)
may be combined with an assessment to tax.
      (4)
An assessment of a penalty under any of paragraphs 1 to 4 must be made
40
before the end of the period of 12 months beginning with—
(a)
the end of the appeal period for the assessment of tax unpaid by
reason of the relevant act or failure in respect of which the penalty is
imposed, or

Finance Bill
Schedule 41 — Penalties: failure to notify and certain VAT and excise wrongdoing
405

(b)
if there is no such assessment, the date on which the amount of tax
unpaid by reason of the relevant act or failure is ascertained.
      (5)
In sub-paragraph (3)(a) “appeal period” means the period during which—
(a)
an appeal could be brought, or
(b)
an appeal that has been brought has not been determined or
5
withdrawn.
      (6)
Subject to sub-paragraph (4), a supplementary assessment may be made in
respect of a penalty if an earlier assessment operated by reference to an
underestimate of potential lost revenue.
      (7)
The references in this paragraph to “an assessment to tax” are, in relation to
10
a penalty under paragraph 2, a demand for recovery.
Appeal
17    (1)
P may appeal against a decision of HMRC that a penalty is payable by P.
      (2)
P may appeal against a decision of HMRC as to the amount of a penalty
payable by P.
15
18    (1)
An appeal is to be brought to the First-tier tribunal.
      (2)
An appeal shall be treated for procedural purposes in the same way as an
appeal against an assessment to the tax concerned (except in respect of a
matter expressly provided for by this Act).
19    (1)
On an appeal under paragraph 17(1) the First-tier tribunal may affirm or
20
cancel HMRC’s decision.
      (2)
On an appeal under paragraph 17(2) the First-tier Tribunal may—
(a)
affirm HMRC’s decision, or
(b)
substitute for HMRC’s decision another decision that HMRC had
power to make.
25
      (3)
If the First-tier tribunal substitutes its decision for HMRC’s, the tribunal may
rely on paragraph 14—
(a)
to the same extent as HMRC (which may mean applying the same
percentage reduction as HMRC to a different starting point), or
(b)
to a different extent, but only if the Tribunal thinks that HMRC’s
30
decision in respect of the application of paragraph 14 was flawed.
      (4)
In sub-paragraph (3)(b) “flawed” means flawed when considered in the light
of the principles applicable in proceedings for judicial review.
Reasonable excuse
20    (1)
Liability to a penalty under any of paragraphs 1, 2, 3(1) and 4 does not arise
35
in relation to an act or failure which is not deliberate if P satisfies HMRC or
(on appeal) the First-tier Tribunal that there is a reasonable excuse for the act
or failure.
      (2)
For the purposes of sub-paragraph (1)—
(a)
an insufficiency of funds is not a reasonable excuse unless
40
attributable to events outside P’s control,

Finance Bill
Schedule 41 — Penalties: failure to notify and certain VAT and excise wrongdoing
406

(b)
where P relies on any other person to do anything, that is not a
reasonable excuse unless P took reasonable care to avoid the relevant
act or failure, and
(c)
where P had a reasonable excuse for the relevant act or failure but the
excuse has ceased, P is to be treated as having continued to have the
5
excuse if the relevant act or failure is remedied without unreasonable
delay after the excuse ceased.
Agency
21    (1)
In paragraph 1 the reference to a failure by P includes a failure by a person
who acts on P’s behalf; but P is not liable to a penalty in respect of any failure
10
by P’s agent where P satisfies HMRC or (on appeal) the First-tier Tribunal
that P took reasonable care to avoid the failure.
      (2)
In paragraph 2 the reference to the making by P of an unauthorised issue of
an invoice showing VAT includes the making of such an unauthorised issue
by a person who acts on P’s behalf; but P is not liable to a penalty in respect
15
of any action by P’s agent where P satisfies HMRC or (on appeal) the First-
tier Tribunal that P took reasonable care to avoid it.
      (3)
In paragraph 3(1) the reference to the doing by P of an act which enables
HMRC to assess an amount as duty due from P under a relevant excise
provision includes the doing of such an act by a person who acts on P’s
20
behalf; but P is not liable to a penalty in respect of any action by P’s agent
where P satisfies HMRC or (on appeal) the First-tier Tribunal that P took
reasonable care to avoid it.
      (4)
In paragraph 4 the reference to P acquiring possession of, or being concerned
in dealing with, goods the payment of duty on which is outstanding and has
25
not been deferred includes a person who acts on P’s behalf doing so; but P
is not liable to a penalty in respect of any action by P’s agent where P satisfies
HMRC or (on appeal) the First-tier Tribunal that P took reasonable care to
avoid it.
Companies: officers’ liability
30
22    (1)
Where a penalty under any of paragraphs 1, 2, 3(1) and 4 is payable by a
company for a deliberate act or failure which was attributable to an officer
of the company—
(a)
the officer as well as the company shall be liable to pay the penalty,
and
35
(b)
HMRC may pursue the officer for such portion of the penalty (which
may be 100%) as they may specify by written notice to the officer.
      (2)
Sub-paragraph (1) does not allow HMRC to recover more than 100% of a
penalty.
      (3)
In the application of sub-paragraph (1) to a body corporate “officer”
40
means—
(a)
a director (including a shadow director within the meaning of
section 251 of the Companies Act 2006 (c. 46)), or
(b)
a secretary.
      (4)
In the application of sub-paragraph (1) in any other case “officer” means—
45
(a)
a director,