Value Added Tax Act 1994, section 77A

Joint and several liability of traders in supply chain where tax unpaid

Part IV Administration, collection and enforcement

(1)This section applies to goods [F664 which fall within any one or moreF664] of the following descriptions—

[F665 (a)any equipment made or adapted for use as a telephone and any other equipment made or adapted for use in connection with telephones or telecommunication;

(b)any equipment made or adapted for use as a computer and any other equipment made or adapted for use in connection with computers or computer systems (including, in particular, positional determination devices for use with satellite navigation systems);

(c)any other electronic equipment made or adapted for use by individuals for the purposes of leisure, amusement or entertainment and any other equipment made or adapted for use in connection with any such electronic equipment;

and in this subsection “other equipment” includes parts, accessories and software. F665]

(2)Where—

(a)a taxable supply of goods to which this section applies has been made to a taxable person, and

(b)at the time of the supply the person knew or had reasonable grounds to suspect that some or all of the VAT payable in respect of that supply, or on any previous or subsequent supply of those goods, would go unpaid,

the Commissioners may serve on him a notice specifying the amount of the VAT so payable that is unpaid, and stating the effect of the notice.

(3)The effect of a notice under this section is that—

(a)the person served with the notice, and

(b)the person liable, apart from this section, for the amount specified in the notice,

are jointly and severally liable to the Commissioners for that amount.

(4)For the purposes of subsection (2) above the amount of VAT that is payable in respect of a supply is the lesser of—

(a)the amount chargeable on the supply, and

(b)the amount shown as due on the supplier’s return for the prescribed accounting period in question (if he has made one) together with any amount assessed as due from him for that period (subject to any appeal by him).

(5)The reference in subsection (4)(b) above to assessing an amount as due from a person includes a reference to the case where, because it is impracticable to do so, the amount is not notified to him.

(6)For the purposes of subsection (2) above, a person shall be presumed to have reasonable grounds for suspecting matters to be as mentioned in paragraph (b) of that subsection if the price payable by him for the goods in question—

(a)was less than the lowest price that might reasonably be expected to be payable for them on the open market, or

(b)was less than the price payable on any previous supply of those goods.

(7)The presumption provided for by subsection (6) above is rebuttable on proof that the low price payable for the goods was due to circumstances unconnected with failure to pay VAT.

(8)Subsection (6) above is without prejudice to any other way of establishing reasonable grounds for suspicion.

[F666 (9)The Treasury may by order amend subsection (1) above.

(9A)The Treasury may by order amend this section in order to extend or otherwise alter the circumstances in which a person shall be presumed to have reasonable grounds for suspecting matters to be as mentioned in subsection (2)(b) above.

(9B)Any order under this section may make such incidental, supplemental, consequential or transitional provision as the Treasury think fit.F666]

(10)For the purposes of this section—

(a) “goods” includes services;

(b)an amount of VAT counts as unpaid only to the extent that it exceeds the amount of any refund due.F663]

Definitions used in section 77A 8

taxable supply

“taxable supply” has the meaning given by section 4(2);

Defined in s.96(1) · see it in the full Act
taxable person

“taxable person” means a person who is a taxable person under section 3;

Defined in s.96(1) · see it in the full Act
VAT

“VAT” means value added tax charged in accordance with this Act;

Defined in s.96(1) · see it in the full Act
the Commissioners

“the Commissioners” means the Commissioners of Customs and Excise;

Defined in s.96(1) · see it in the full Act
the supplier

(b) the goods are removed in the course or furtherance of that business by or under the directions of the person carrying on that business (“the supplier”),

Defined in Sch.9ZA para.57(1) · see it in the full Act
prescribed accounting periods

account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations and regulations may make different provision for different circumstances.

Defined in s.25(1) · see it in the full Act
prescribed accounting period

“prescribed accounting period” has the meaning given by section 25(1);

Defined in s.96(1) · see it in the full Act
subsection (1) above

(a) the reference in subsection (2) to “subsection (1) above” were to “subsection (1) and paragraph 24(1) of Schedule 9ZA”;

Defined in Sch.9ZA para.24(2) · see it in the full Act

(b) the reference in subsection (2A) to “subsection (1) above” were to “subsection (1) or paragraph 24(1) of Schedule 9ZA”.

Defined in Sch.9ZA para.24(2) · see it in the full Act

Cases considering section 77A 11

Total Network SL (a company incorporated in Spain) (Original Respondents and Cross-appellants) v Her Majesty's Revenue and Customs (suing as Commissioners of Customs and Excise) (Original Appellants and Cross-respondents)

[2008] UKHL 19 · 12 March 2008Limits

The later anti-fraud provision applies to specified goods, including telephones and computer equipment. It was not in force for the transactions in issue (see para [16]). A taxable recipient who knew or reasonably suspected that VAT in the supply chain would go unpaid may be made jointly and severally liable. The provision did not extend to a non-taxable overseas company such as Total (see paras [16]; [135]).

Customs and Excise & Anor v Federation of Technological Industries & Ors

[2004] EWCA Civ 1020 · 30 July 2004

Section 77A was described as enabling joint and several liability where a taxable person knew or had reasonable grounds to suspect that VAT would be unpaid, with a rebuttable low-price presumption. Its EU-law basis was referred to the European Court. (see paras [22]-[31], [74])

Apollo Communications Centre Ltd (In Liquidation) & Ors v Rahmann & Ors

[2007] EWHC 3467 (Ch) · 14 June 2007Interprets

Interprets the provision as applying where a taxable supply is made to a taxable person who knew or had reasonable grounds to suspect that VAT on that or another supply would go unpaid. The provision covers both acquisition fraud and carousel fraud, including the pleaded facts. (see paras [24]-[26])

What each judgment says about section 77A is in the case-law panel in the full Act.

Amendments and notes

4 notes from legislation.gov.uk

Amendments

  1. F664Words in s. 77A(1) substituted (1.5.2007) by The Value Added Tax (Amendment of section 77A of the Value Added Tax Act 1994) Order 2007 (S.I. 2007/939), arts. 1, 2(a)
  2. F665S. 77A(1)(a)-(c) substituted for s. 77A(1)(a)(b) (1.5.2007) by The Value Added Tax (Amendment of section 77A of the Value Added Tax Act 1994) Order 2007 (S.I. 2007/939), arts. 1, 2(b)
  3. F666S. 77A(9)-(9B) substituted for s. 77A(9) (19.7.2007) by Finance Act 2007 (c. 11), s. 98(1)
  4. F663S. 77A and cross-heading inserted (retrospective to 10.4.2003) by Finance Act 2003 (c. 14), s. 18(1)(4)