Personal 'Deliberate' Penalties
Personal ‘Deliberate’ Penalties
A common misconception is that HMRC must establish fraud before personal penalties can be imposed on individuals. In fact, HMRC need only demonstrate that a director or accountant knowingly submitted an incorrect VAT return. The threshold is lower than many people expect, and the consequences can be severe.
Penalties for deliberate inaccuracies can reach 100% of the under-declared amounts. This means that an individual can face a personal liability equal to the full amount of VAT that was under-reported. However, the penalty can be reduced to 30% where the inaccuracy was not concealed and the individual provides a full admission and cooperates with HMRC’s enquiries.
Where the company itself is unable to pay the penalties, HMRC has the power to issue a Personal Liability Notice directly to the individual concerned. This transfers the financial burden from the company to the director or other responsible person.
Before issuing a Personal Liability Notice, HMRC is required to contact the individual and request a disclosure. This step gives the individual an opportunity to explain their position and potentially reduce the level of penalty that will be applied.
Given the serious financial and personal consequences of deliberate penalties, specialist guidance is strongly advised for anyone who receives correspondence from HMRC in connection with potential deliberate inaccuracies. Early engagement with the process can significantly affect the outcome.
Frequently asked questions
Does HMRC have to prove fraud to impose a deliberate penalty on a director?
No. A common misconception is that HMRC must establish fraud before personal penalties can be imposed. HMRC need only demonstrate that a director or accountant knowingly submitted an incorrect VAT return. That threshold is lower than many people expect, and the consequences for the individual can be severe.
How much is a deliberate inaccuracy penalty?
Penalties for deliberate inaccuracies can reach 100% of the under-declared amounts, so an individual can face a personal liability equal to the full amount of VAT under-reported. The penalty can be reduced to 30% where the inaccuracy was not concealed and the individual provides a full admission and cooperates with HMRC's enquiries.
When can HMRC issue a Personal Liability Notice for deliberate penalties?
Where the company itself is unable to pay the penalties, HMRC can issue a Personal Liability Notice directly to the individual concerned, transferring the financial burden from the company to the director or other responsible person. Before issuing the notice, HMRC is required to contact the individual and request a disclosure.
Why does HMRC request a disclosure before issuing a Personal Liability Notice?
The disclosure request gives the individual an opportunity to explain their position and potentially reduce the level of penalty that will be applied. Given the serious financial and personal consequences of deliberate penalties, specialist guidance is strongly advised for anyone receiving HMRC correspondence about potential deliberate inaccuracies.
