The new procedure for VAT and indirect tax enquiry penalties. By Nichola Ross Martin

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HEALTH WARNING: This is a procedure which applies from 1st September 2007, and is not to be confused with the proposed new tax return penalty regime for incorrect returns (to cover CTSA, ITSA, PAYE, NIC and VAT) which will be applied according to taxpayer behaviours, from 1 April 2009.

HM Revenue and Customs have just introduced another new penalty procedure which will apply to VAT and other indirect taxes and customs duties, but not Stamp Duties. This will apply where a taxpayer who is subject to an enquiry is suspected of dishonest conduct, but the degree of such conduct and quantum of the tax at stake is low enough not warrant criminal prosecution or be dealt with under Code of Practice 9 (2005): the Civil Investigation of Fraud.

The new procedure is detailed in Public Notice 160:...

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26th Oct 2007 15:56

Dishonest conduct - money laundering reporting obligations

By definition dishonesty involves deliberately and knowingly under-declaring of tax liabilities. HMR&C are not referring here to something which they are satisfied arises from a mistake, misunderstanding or merely negligent omission. (Of course mistakes and negligent omissions can also give rise to penalties.)

It does not necessarily follow that because HMR&C suspect dishonesty that you must also suspect dishonesty.

However if, as a result of action by HMR&C, you do suspect your client has been dishonest in his tax affairs and has under-paid tax (or received an excessive refund) as a result then your obligation to report to SOCA under the Proceeds of Crime Act 2002 and the Money Laundering Regulations kicks in.

So you are likely to find yourself filing a Suspicious Activity Report (SAR). In these circumstances do make it clear in the SAR that HMR&C are already dealing with the matter.

You also need to consider whether there are any non-tax implications to which you will need to refer in your SAR. For example where a director / employee of a company has defrauded the company by pocketing takings which are not recorded, causing other shareholders / directors to lose out.


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