It’s incredibly distressing to be examined for possible VAT fraud or evasion. It’s considerably worse if you’re accused of VAT fraud.
As we describe below, the perpetrator of many large-scale VAT schemes may have vanished. While we have represented clients on these sorts of alleged scams, the majority of our work includes representing clients who are being investigated for alleged misconduct that is neither complex nor large-scale in nature. Additionally, we counsel customers who have been implicated in carousel or missing trader fraud but were not the primary culprits or were unintentionally involved in the scam.
Types of VAT fraud that are frequently committed
These include the following:
- Carousel fraud — a highly organized kind of cross-border fraud in which VAT is not paid on import but is charged on sale in the UK, at which point the fraudster vanishes with the VAT not paid to HMRC.
- Missing trader fraud – this type of fraud is similar to carousel fraud in that the trader vanishes without paying VAT to HMRC.
- Cash fraud — when a firm is proved to be purposefully accepting cash payments, generally by giving a modest discount to the consumer, without charging VAT and without recording the transaction for VAT.
Is it a case of fraud or evasion?
By definition, dodging the proper recording, charging, and payment of VAT to the Revenue is fraud. What is possibly ambiguous is how HMRC would address relatively low-level VAT tax evasion in comparison to highly sophisticated, pre-planned VAT fraud that may cost the Revenue millions.
When it comes to evasion, the HMRC may very well strategically employ the fear of future fraud charges. In these instances, where HMRC can legally prove only a certain amount of underpayment but suspects a greater amount, good legal advice can be critical in obtaining a resolution with HMRC that avoids charging you with fraud but also prevents you from panicking and admitting to and paying an amount that is likely much higher than the amount you should pay the Revenue to reflect the misconduct.
The Different Types of Tax Fraud Investigations Conducted by HMRC
If HMRC notifies you or your firm that they are conducting what is known as “Aspect” or “Full” investigations, you have reason to be worried. As the title implies, HMRC will want to examine specific parts of your VAT. These sorts of inquiries frequently occur when your VAT records and/or payments appear to be significantly out of step with the sector, trade, or business type norms.
Penalties for VAT avoidance on a civil level
As previously stated, in the majority of cases, HMRC imposes civil fines rather than criminal punishments. This is not to say that the sanctions are trivial.
HMRC has robust civil enforcement authorities against tax avoidance, including the following:
- Fines are being imposed.
- Making it harder for the company to stay in business.
- Individuals who have failed to pay penalties totalling more than £25,000.00 will be named and shamed.
- When HMRC begins an investigation, it may disqualify business directors, who may also face personal fines if they refuse to cooperate.
Advice and protection against VAT fraud
Please contact us if you require assistance with any part of dealing with or contesting a VAT problem raised by HMRC. We have true day-to-day expertise, so we not only know the law but also how to best defend you strategically and in any HMRC talks.
