Value Added Tax Act 1994 Schedule 11A paragraph 11

Amount of penalty

Paragraph 11 of Schedule 11A sets out how the penalty is calculated when a taxable person fails to notify HMRC about the use of a VAT avoidance scheme, distinguishing between notifiable schemes and designated schemes.

• For a notifiable scheme that is not a designated scheme, the penalty is a flat £5,000.
• For a designated scheme, the penalty is 15% of the VAT saving achieved through the scheme.
• The VAT saving is calculated by comparing the VAT position shown in returns with the position that would have existed without the avoidance scheme, covering reduced output tax, inflated input tax claims, and non-deductible tax differences.
• The relevant periods for calculating the VAT saving run from the accounting period in which the disclosure obligation first arose to whichever is earlier: the period in which the person complied, or the period immediately before HMRC notified the penalty assessment.