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HMRC may issue a notice to a company officer, making them liable to part or all of a s69C penalty charged on the company.

The main statutory condition is that the 鈥渁ctions of the company鈥� which gave rise to the s69C penalty were attributable to the officer.听

Knew or should have known

As a matter of policy, we will only make a company officer liable to pay a company penalty if we can show that they personally 鈥渒new or should have known鈥� that the relevant transactions were connected to VAT fraud.

You should apply the 鈥渒new or should have known鈥� test to the individual according to the same principles and practices that you use in applying it to the company as a whole, but focusing only on the information and understanding held by the individual in question.

The test for 鈥渒new鈥� is: can we prove on the balance of probabilities that the company officer did know of the connection with fraud?

The test for 鈥渟hould have known鈥� is:听would a reasonable business-person have concluded that the company officer ought to have known that the only reasonable explanation for the transactions was that they were connected with fraud?听听

When are actions of the company attributable to an officer?

Where we can show that a knew or should have known that transactions on which input tax or zero rate was claimed were connected with VAT fraud, then we can say that the actions of the company which led to the s69C penalty were attributable to that director鈥檚 acquiescence (at least) in the transactions and claim.听Directors have a responsibility to intervene in such a situation, even if they did not set it up themselves.

In some circumstances it may be reasonable for a director not to know about the connection with fraud. This is most likely where a director has no involvement with sourcing suppliers and agreeing purchase deals, reasonably trusts another company officer to do this work well, and sees nothing in the company鈥檚 work or financial results to arouse suspicion.听For example, Director A could be mostly focused on planning and delivering work for customers, with no reason to question the steady provision of good quality supplies at commercial prices which Director B is arranging.听In such a case, we would probably not look to make Director A liable for the penalty.

A company officer who is not a director (or a shadow director or a director) may also meet the 鈥渒new or should have known鈥� test. But the company鈥檚 relevant actions are unlikely to be attributable to them unless they took an executive role in either arranging or authorising the transactions, or authorising the VAT returns.听A 鈥渕anager鈥� who merely acts under instructions would be a company officer, but would not usually be a suitable subject for a s69D notice.

Where a non-employed agent is hired to manage purchases, and arranges the connection to VAT fraud, they will rarely be a company officer themselves (although their actions are directly attributable to the company, and are the basis for the denial and the s69C penalty).听But any director who 鈥渒new or should have known鈥� that the agent was arranging transactions connected with VAT fraud may be made liable to pay the penalty under s69D.

Who is an officer?

An 鈥榦fficer鈥� is defined as the director, secretary or manager of a company.听Where the entity is an unincorporated association, a person 鈥榤anaging or purporting to manage鈥� the association鈥檚 affairs is also an officer.听For a limited liability partnership, any member is an 鈥榦fficer鈥�.

You should not normally seek to attribute liability to pay to company officers where you expect the business to be able to pay the penalty.听However, there may be exceptional circumstances, where recovery action against the company officer may be appropriate.