If you operate your business through a limited company then you are generally protected against being held personally liable for the company’s debts. However, there are certain times when a creditor can look beyond the veil of limited liability, and one instance is when a company makes a deliberate VAT mistake which results in less VAT being paid over to HMRC than is correctly due. Although used only rarely, HMRC does have the power to issue a penalty on the director of the company personally where they can show the underpaid VAT was due to his dishonest conduct.
Two recent cases illustrate the types of situations where a personal penalty can be imposed:
- In the first case a VAT inspection found suppliers’ invoices to support VAT inputs were missing. The director obtained ‘copy’ invoices from the main suppliers, but those ‘copies’ were found to be very poor forgeries. The director was served with a personal penalty of £43,753 which represented 60% of the over claimed VAT.
- In the second case, the company failed to submit eight successive VAT returns. The VAT office issued estimated assessments which were less than the VAT eventually found to be due. However, the directors did not inform the VAT office of these under assessments. In this instance, the directors were served with personal penalties amounting to £194,214.
If any of the above sounds familiar to you then we would be pleased to advise you before you are faced with similar serious consequences.