18 October 2017 
Amanda Darley, Head of Operations and Engagement
The second Finance Bill of 2017 includes the expected measures to target businesses dealing with other businesses involved in VAT fraud. The bill introduces the following measures to penalise taxpayers who knew or should have known that the other party to a transaction was involved in VAT evasion in relation to that transaction (often referred to as 'the knowledge principle'):
Consequently this will introduce the possibility of university council (or equivalent) members or subsidiary company officers being personally liable for a penalty relating to VAT evaded by a third party, as well as the university/company itself. Once again, the emphasis is on ensuring that universities and companies do not knowingly enter into transactions with parties committing VAT fraud and that their procedures and due dligence etc. are robust enough to alert them to such situations.
Procurement processes will once again be under the spotlight here, which links to the work universities (and subsidiary companies) should currently be doing to review their risks under the new Criminal Finances Act 2017. Whilst not relating directly to these new measures, Section 6 of HMRC's VAT Notice 726 is a good starting point as it details 'How to ensure the integrity of your supply chain' (and it looks at both suppliers and customers).
The knowledge principle has developed from case law so we hope that HMRC are very clear in explaining what it is and when it can be applied in any announcements or guidance regarding the new legislation.
More details can be found in this article on the Charity Tax Group website and this information from Deloitte.
