Personal Penalties

Personal Penalties

HMRC have the power to raise penalties against individuals for tax returns thought to be deliberate. This is a serious matter that can have lasting consequences for directors and other responsible persons.

The Threshold

HMRC need not establish fraudulent intent in the traditional sense. It is sufficient for HMRC to demonstrate that the taxpayer knowingly submitted an incorrect declaration. This is a lower bar than proving fraud, and taxpayers should not assume they are safe simply because they did not set out to defraud the Revenue.

Corporate Liability Transfers to Directors

Where a company becomes insolvent, the corporate liability can transfer to the directors personally. This means that the protection of the corporate structure falls away, and directors face personal exposure for the company’s tax defaults.

HMRC also publishes the names of deliberate tax defaulters, which carries reputational consequences beyond the financial penalty itself.

MTIC and Kittel Cases

In MTIC (Missing Trader Intra-Community) and Kittel cases, directors face personal liability where HMRC can establish that the directors knew of the fraud. The penalties in these cases are severe, ranging from 80% to 100% of the denied VAT.

Proposed Changes

There are proposed changes to the penalty regime that would impose 30% penalties on directors who “knew or should have known” about fraud. This represents a significant expansion of the current rules, lowering the threshold from actual knowledge to constructive knowledge.

Directors facing any form of personal penalty from HMRC should seek specialist advice immediately.