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Penalties for incorrect VAT certificates - the basics

In certain scenarios, in order to be eligible to benefit from a lower rate VAT at the reduced or zero-rate, one of the conditions is that the customer must issue a VAT certificate to the supplier to document that the criteria for the lower rate of VAT has been met.

Most commonly, certificates are issued in relation to certain supplies connected with land and buildings or supplies made to charities.

For VAT relief to be correctly claimed, eligibility conditions need to be satisfied. Where those conditions are not met, a certificate is issued incorrectly and a penalty can be levied on the person who gives the certificate.

In simple terms, the amount of the penalty is the amount of VAT that has not been accounted for as a result of the certificate being incorrectly issued. Therefore, if a zero-rate certificate is incorrectly issued, the penalty will be the amount that ought to have been charged on the supply. If a reduced-rate certificate is incorrectly issued,