Consultation on a new penalty for participating in VAT fraud

HMRC is consulting on proposals for a new penalty based on the established principle that businesses are denied the right to reclaim input tax when they know or should have known that their transactions are connected with VAT fraud. This is often referred to as the ‘knowledge principle’. Such businesses are regarded in law as participants in the fraud.

The aim of the consultation is to design a penalty whose severity does not rely on HMRC having to distinguish between ‘deliberate’ or ‘careless’ offences and which discourages frivolous appeals.

Under the current penalty regime the level of any penalty...