CEP4550 - Civil evasion penalties for Customs, Excise and VAT: apportioning penalties to directors and managing officers: overview

The legislation provides for Customs and VAT civil evasion penalties to be charged to a company director or managing officer or a managing member of a Limited Liability Partnership, where there is evidence to show that the conduct giving rise to the penalty is attributable to their dishonesty.

It is commonly referred to as apportioning a penalty to a director, managing officer or managing member.

The power to apportion a penalty to a named officer was introduced to deter such people from acting dishonestly by preventing them from avoiding sanctions by hiding behind corporate liability.

It was also intended to increase the likelihood of recovering a penalty in situations where it is known before assessment that the corporate body cannot afford to pay.

However, in securing this additional power, it was stated in Parliament that it would be particularly used in certain circumstances.

Therefore, providing the legal basis is satisfied, as a matter of policy you should only apportion a penalty to a named officer where:

  • there is evidence that the person has gained personally from the evasion; or
  • the corporate body is insolvent; or
  • the corporate body is suspected of becoming insolvent.

To see the relevant legislation on apportioning civil evasion penalties, go to Customs or VAT.

If a penalty has been imposed on a company and circumstances change, for example the company goes into liquidation, the liability for the penalty should not subsequently be transferred to the directors/managing officers/managing members. You should never transfer liability to the penalty to a person because of non-payment by another.

Excise

It is not possible to apportion an excise civil evasion penalty to a named officer of the company, such as, a director manager or shareholder.

In excise cases where civil evasion penalties for dishonest evasion of Customs duty are also being charged (for example ‘Dansk cases’), the customs civil evasion penalty should be apportioned, if appropriate.

Example

Mr A is a director of Z Ltd. Z Ltd is due a penalty for dishonest evasion of excise duty under S8 FA94 and a penalty for dishonest evasion of Customs duty under S25 FA03. The caseworker decides that the evasion arose owing to the dishonesty of Mr A. The caseworker can transfer the S25 penalty to Mr A under S28 FA03, but cannot transfer the penalty under S8 so this remains with Z Ltd.