*See this commentary for more*

CTG responded to an HMRC consultation on penalties for participating in VAT fraud.

The consultation considered a range of options for a new penalty for those that knew or should have known their transactions were connected with fraud. The consultation explored the case for a new penalty, including the following questions:

• How should the penalty be structured? Option A (a fixed rate system) or Option B (an “early payment” system)? Or should other options be considered?
• Should the new penalty apply to company officers?
• Should the new penalty feature reductions in the level of the penalty
  for co-operating with HMRC?
• Should those that participate in VAT fraud be named and shamed?

CTG is committed to ensuring that charities are not used as a vehicle for VAT fraud and welcome the Government’s commitment to tackling this issue. The only possible issues is whether the trustees should be exposed to risk if the executive or other employees undertake fraud or unwittingly allow the charity to be used in fraud.  Should trustees be liable to a penalty on the basis that they should have known? Unfortunately we cannot assume that charities will never be hijacked for fraudulent purposes and that innocent trustees may be in the firing line.

HMRC published a summary of responses to the consultation. While the Government decided to move ahead with the proposed penalty for participating in VAT fraud, it does not appear to have picked up CTG’s point regarding trustees. We will continue to monitor the situation and make representations where appropriate.