Part IV Administration, collection and enforcement
F4Default surcharges and other penalties and criminal offences
69CF2Transactions connected with VAT fraud
1
A person (T) is liable to a penalty where—
a
T has entered into a transaction involving the making of a supply by or to T (“the transaction”), and
b
conditions A to C are satisfied.
2
Condition A is that the transaction was connected with the fraudulent evasion of VAT by another person (whether occurring before or after T entered into the transaction).
3
Condition B is that T knew or should have known that the transaction was connected with the fraudulent evasion of VAT by another person.
4
Condition C is that HMRC have issued a decision (“the denial decision”) in relation to the supply which—
a
prevents T from exercising or relying on a VAT right in relation to the supply,
b
is based on the facts which satisfy conditions A and B in relation to the transaction, and
c
applies a relevant principle of EU case law (whether or not in circumstances that are the same as the circumstances in which any relevant case was decided by the European Court of Justice).
5
In this section “VAT right” includes the right to deduct input tax, the right to apply a zero rate to international supplies and any other right connected with VAT in relation to a supply.
6
The relevant principles of EU case law for the purposes of this section are the principles established by the European Court of Justice in the following cases—
a
joined Cases C-439/04 and C-440/04 Axel Kittel v. Belgian State; Belgium v. Recolta Recycling (denial of right to deduct input tax), and
b
Case C-273/11 (b)Mecsek-Gabona Kft v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó Főigazgatósága (denial of right to zero rate),
7
The penalty payable under this section is 30% of the potential lost VAT.
8
The potential lost VAT is—
a
the additional VAT which becomes payable by T as a result of the denial decision,
b
the VAT which is not repaid to T as a result of that decision, or
c
in a case where as a result of that decision VAT is not repaid to T and additional VAT becomes payable by T, the aggregate of the VAT that is not repaid and the additional VAT.
9
Where T is liable to a penalty under this section the Commissioners may assess the amount of the penalty and notify it to T accordingly.
10
No assessment of a penalty under this section may be made more than two years after the denial decision is issued.
11
The assessment of a penalty under this section may be made immediately after the denial decision is made (and notice of the assessment may be given to T in the same document as the notice of the decision).
12
Where by reason of actions involved in making a claim to exercise or rely on a VAT right in relation to a supply T—
a
is liable to a penalty for an inaccuracy under paragraph 1 of Schedule 24 to the Finance Act 2007 for which T has been assessed (and the assessment has not been successfully appealed against by T or withdrawn), or
b
is convicted of an offence (whether under this Act or otherwise),
those actions do not give rise to liability to a penalty under this section.
Words in s. 59 cross-heading omitted (1.1.2023 for specified purposes, 6.4.2024 for specified purposes) by virtue of Finance Act 2021 (c. 26), s. 118(2), Sch. 27 para. 16; S.I. 2022/1278, reg. 2(3)(4)(a); S.I. 2024/440, reg. 2