Notice

Notice 160: compliance checks into indirect tax matters

Published 5 December 2011

Foreword

This notice cancels and replaces Notice 160 (February 2015).

1. Introduction

We make checks into tax matters for a number of different reasons. This notice deals only with cases where we have reason to believe dishonest conduct has occurred. Our practice in relation to other compliance checks is set out in a series of factsheets. This notice covers all indirect taxes other than Stamp Duties, Customs Duties and import VAT.

1.1 Compliance checks into indirect tax matters

This notice explains what happens during a check into indirect tax matters if we suspect conduct involving dishonesty.

1.2 What we mean by ‘dishonesty’

Dishonesty is where a person does something or fails to do something that would be regarded as dishonest according to the ordinary standards of reasonable and honest people.

2. How does this affect me?

If we identify irregularities due to conduct involving dishonesty, a civil evasion penalty may be charged. If we also identify irregularities due to deliberate behaviour during our check we will normally apply a deliberate penalty or a deliberate and concealed penalty.

We will normally ask you and your professional adviser, if you have one, to attend a meeting with us. Please tell us in advance if you need an interpreter or have any particular needs in relation to your health or personal circumstances so that we can take these into account when we prepare for the meeting.

We will tell you:

• the check isn’t being conducted with a view to prosecution in relation to the matters that are the subject of our check
• the matters that are the subject of the check - this means the behaviour(s) and period(s) that we are checking, rather than the specific information we hold that gives rise to our suspicion of dishonesty

You’ll have an opportunity to disclose any irregularities or matters in relation to your tax affairs.

We will:

• listen to any explanations that you or your professional adviser gives
• keep an open mind to the possibility that there may be an innocent explanation for the suspected irregularities

We make notes of all meetings and can give copies of the notes to you or your adviser if you ask for them.

If you wish to disclose irregularities or matters in relation to your tax affairs in areas that are not the subject of our check we may not be able to deal with these as part of the check. However we will consider any disclosures that you make, or additional matters that we may uncover during the check, to determine how they should be treated. Any irregularities outside of the matters being checked may be investigated with a view to prosecution if appropriate.

We expect you to be truthful, to tell us all relevant facts and to co-operate fully in putting your tax affairs in order. If you are unsure whether particular facts are relevant, you should tell us anyway.

It may be necessary to make further checks. If this happens, we will explain to you the compliance checks process and the steps that need to be taken to establish the relevant facts. It may be necessary to use our statutory information powers, including contacting third parties.

We will invite you to make payments on account towards any tax arrears, both at the initial meeting and throughout the check. This will reduce any interest charges.

If, as a result of the check, we believe that the tax arrears are due to conduct involving dishonesty or deliberate behaviour on your part we will consider whether you should pay a penalty.

2.1 Do I have to co-operate with your check?

The extent to which you co-operate with us and provide us with information is entirely a matter for you. In making your decision, you may wish to get help from a professional adviser. If you do, your adviser can accompany you to all meetings held with us. Your advisor may correspond with us on your behalf providing you have given us authority in writing for them to do so.

We would welcome your co-operation with the check and in establishing the correct amount of tax due. Such co-operation can significantly reduce the amount of any penalties due.

Please also read factsheet CC/FS9 - The Human Rights Act and Penalties which tells you about your rights under the European Convention on Human Rights when we are considering penalties.

2.2 How do you work penalties out?

The penalty is calculated as a percentage of the tax loss. If there was a potential tax loss the penalty is a percentage of the potential loss.

Which penalty applies depends upon the date the irregularity occurred.

For VAT irregularities involving dishonest conduct that relates to returns or documents due to be sent to us before 1 April 2009 irrespective of the date the accounting period commences, or if the accounting period commences before 1 April 2008 irrespective of the date the return is due to be sent to us, a civil evasion penalty will normally be applied.

For indirect tax irregularities other than VAT due to conduct involving dishonesty, that relates to returns or documents due to be sent to us before 1 April 2010 irrespective of the date the accounting period commences, or if the accounting period commences before 1 April 2009 irrespective of the date the return is due to be sent to us, a civil evasion penalty will normally be applied.

A civil evasion penalty starts at 100% of the tax evaded.

If the irregularity occurs outside these dates, penalties other than a civil evasion penalty may apply. For instance VAT inaccuracies or failures to notify HMRC of an under assessment of VAT, where the accounting period commences on or after 1 April 2008 and the return is due on or after 1 April 2009, will be subject to a penalty for inaccuracy. Indirect tax inaccuracies or failures to notify an under assessment for indirect tax other than VAT, where the accounting period commences on or after 1 April 2009 and where a return is due on or after 1 April 2010, would be subject to a penalty for inaccuracy.

If HMRC have not been notified at the correct time about certain changes that arise on or after 1 April 2010 which may affect your liability to tax, including a failure to notify liability to be registered for tax, a penalty for failure to notify may apply.

A VAT and Excise wrongdoing penalty may apply for certain VAT (unauthorised issue of an invoice showing VAT) and Excise wrongdoings which take place on or after 1 April 2010.

Further information about these penalties can be found in factsheets CC/FS7a (Penalties for errors in returns and documents), CC/FS11 (Penalties for failure to notify), CC/FS12 (Penalties for Vat and Excise Wrongdoings).

Where an irregularity is not within the provisions of the penalty for inaccuracies, the failure to notify penalty of the VAT and Excise Wrongdoings penalty, a civil evasion penalty may still apply. This may be in the case of a failure to submit a VAT return or certain Excise Duty irregularities.

2.3 How can penalties be reduced?

It’s for you to decide whether or not to co-operate with our check, but if you do, you should be truthful. If you make a statement to us you know to be false during our check, you could face prosecution.

If you choose to co-operate and disclose details of your true liability then you can significantly reduce the amount of any penalties due.

You should tell us about anything you think is relevant when we are working out the level of the penalty. At the end of the check we will take into account how much you have co-operated.

2.3.1 Reductions under Civil Evasion Penalty Rules

We can charge a maximum penalty equal to 100% of the tax evaded, this can be reduced by up to:

• 40% - early and truthful explanation as to why the arrears of tax arose and the true extent of them
• 40% - fully embracing and meeting responsibilities under this procedure by, for example, supplying information promptly, quantification of irregularities, attending meetings and answering questions

In most cases, therefore, the maximum reduction obtainable will be 80% of the tax on which penalties are chargeable. In exceptional circumstances however, consideration will be given to a further reduction, for example, where you have made a full and unprompted voluntary disclosure.

2.4 What happens after your check?

Having considered all the facts and evidence gathered during the course of the check we will make a decision on whether or not any penalties are due. We will tell you how much the penalty is and how we have worked it out. The penalty assessment will be in addition to any tax that may also be due.

2.5 What if I cannot pay?

If you agree the amounts of assessment and penalty to be paid, but can’t pay the full amount straight away, it may be possible to arrange payment by instalments. You’ll need to contact our Debt Management and Banking section. We will give you the address.

2.6 Can I appeal against your decision?

If you disagree with our decision to charge you a penalty or the amount of the penalty we have charged, you can have your case:

• reviewed by an officer not previously involved
• heard by an independent tax tribunal

If you opt to have your case reviewed you’ll still be able to appeal to the tribunal if you disagree with the outcome.

If you want a review you should write to us within 30 days of the date the penalty notice was sent to you, giving reasons why you disagree with our decision. You don’t have to write to us yourself. An accountant or adviser can do this on your behalf. Factsheet HMRC1: HM Revenue and Customs decisions - what to do if you disagree gives you further information about appeals and reviews, or you can call the helpline on Telephone: 0300 200 3700.

You can find out more about tribunals on the Tribunals Service website or you can call Telephone: 0845 223 8080.

3. Your rights under our service commitment to you

3.1 During our checks

We will always be courteous, fair and professional. If you or your professional adviser writes to us we will aim to respond to the questions or issues you raise within our published service standards. This includes matters such as your legal rights and obligations under the law.

We will undertake any further enquiries promptly and keep you informed as to what we expect from you.

3.2 Your costs

You have to pay for any costs that you incur in dealing with our check, including the fees of an accountant or other professional adviser. We know that dealing with our checks can cost you time and money, so we will make sure that our checks are reasonable and necessary to your case. We will close our checks as soon as we are satisfied that your tax affairs in relation to the matters under investigation are in order or settled.

4. Glossary

Term	Description
Returns	All indirect tax declarations, statements, disclosures, tax returns or claims etc, are referred to as ‘returns’.
Indirect taxes	VAT, all Customs Duties and Excise Duties including those applicable to alcohol, tobacco, gambling and oils, Air Passenger Duty, Insurance Premium Tax, Landfill Tax, Climate Change Levy and Aggregates Levy, and any other indirect taxes matters for which responsibility is laid to HMRC.
Tax assessment	A legal method of establishing a debt due to the Crown by a trader who has made an error, an understatement or an over claim of tax.
Penalty assessment	A legal method of charging a penalty relating to dishonest conduct or deliberate behaviour which led to arrears of tax.

Your rights and obligations

Your Charter explains what you can expect from us and what we can expect from you.

Do you have any comments or suggestions?

If you have any comments or suggestions to make about this notice, please write to:

HM Revenue and Customs
Criminal and Enforcement Policy
4th Floor, 100 Parliament Street
London
SW1A 2BQ

Please note this address is not for general enquiries.

For your general enquiries please call our helpline on Telephone: 0300 200 3700.

Putting things right

If you are not satisfied with our service, please let the person dealing with your affairs know what is wrong. We will work as quickly as possible to put things right and settle your complaint. If you are still unhappy, ask for your complaint to be referred to the Complaints Manager.

You can read further information about our complaints proceedure.

How we use your information

HMRC is a Data Controller under the Data Protection Act 1998. We hold information for the purposes specified in our notification to the Information Commissioner, including the assessment and collection of tax and duties, the payment of benefits and the prevention and detection of crime, and may use this information for any of them.

We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:

• check the accuracy of information
• prevent or detect crime
• protect public funds

We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HMRC unless the law permits us to do so.