VATF45150 - Basic interventions: matters to consider when determining whether to use a civil intervention: assessments and penalties: raising penalties in particular circumstances: when is a penalty chargeable

The legislation at s69C VATA 1994 sets out three conditions which must all be met before a penalty can be charged on a trader:

Condition A

A transaction which the trader has entered into (either making or receiving a supply) was connected with the fraudulent evasion of VAT by another person.

Condition B

The trader knew or should have known of the connection with VAT fraud.

Condition C

HMRC has applied the principles established in the Kittel and/or Mecsek cases so as to deny a VAT right. Typically, this will be the right to deduct input tax, or the right to zero rate.

In practice this means that a penalty may be charged whenever HMRC applies Kittel or Mecsek judgments and denies input tax or denies the zero rate. There is no behavioural test: for example, you do not have to decide whether the trader behaved deliberately or carelessly. Nor is it necessary to differentiate between actual knowledge and means of knowledge. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)