VAT investigations
VAT investigations often have numerous aspects, such as interviews under caution by the investigating body. Each agency has different powers, some more wide-reaching than others.
Other aspects could be:
Many businesses come under VAT scrutiny, however, some businesses are deliberately targeted by HMRC. These companies are often in the telecommunications industry, or may be businesses selling computer components and, more recently, companies involved in carbon emission trading. His Majesty’s Revenue and Customs (HMRC) have put various measures into place to try and stop these activities as they occur. The reverse charging mechanism is one example. In addition, the VAT charged on carbon trading certificates was recently changed.
This specialist type of fraud involves goods being imported VAT-free from EU countries and sold on at VAT inclusive prices. The company at the beginning of the chain then disappears without paying HMRC the VAT charged when selling the goods on. These companies are known as ‘missing traders’, ‘hijacked traders’ or ‘defaulting traders.’ The goods are then sold down a chain of companies known as ‘buffer’ companies. These companies are used to disguise the paper trail of the fraud. Finally, the last company in the chain exports the goods to the EU (or elsewhere) free of VAT. As this company had already paid VAT on its purchase of the goods from the supplier the company then reclaims the VAT back. If this was a legitimate trade, then a reclaim of VAT is allowable. The same goods are often imported again into the UK and the chain starts again. This is how the fraud became known as a ‘carousel fraud’, due to the same goods going around again and again.
Carousel fraud VAT (MTIC fraud)
Cases involving MTIC fraud are complex often due to the number of businesses involved in the chain and the trading relationships. It can be difficult to unravel and demonstrate what has happened and what has knowingly occurred in relation to VAT. The issue of knowledge is extremely important in VAT fraud cases.
Our fraud team has extensive experience in dealing with those facing prosecution and trial for large scale carousel fraud. Defendants could face lengthy terms of imprisonment if convicted, and action may be taken under the Proceeds of Crime Act. Trials often last several months, creating havoc for the individuals and businesses facing these allegations. We have detailed knowledge of the legislation and compliance requirements relating to this area and our team are highly skilled at proactively defending these charges, particularly conspiracy to defraud or conspiracy to cheat HMRC.
Our expert team of serious fraud lawyers have extensive experience and have appeared as a top tier law firm for the defence of serious fraud. Contact our expert VAT fraud solicitors on 01616 966 229 or complete our online enquiry form.
VAT fraud FAQs
At Stephensons, our solicitors are specialists in VAT fraud. Recommended in the Legal 500, we can draw from several expert resources to defend your case. We have vast amounts of experience with dealing with agencies such as HMRC. We understand their mindset and will confidently challenge them, if appropriate. If you are facing VAT fraud allegations, then contact our solicitors for VAT fraud legal advice today.
What is VAT fraud?
VAT fraud is a type of tax evasion, when a business doesn’t charge the VAT they should, or does charge the tax but does not pay it to HMRC. There are several different types of VAT fraud, which include:
- Inflated refund claims
- Underreported sales
- Domestic sales disguised as exports
- Carousel fraud
- Using fraudulent VAT numbers.
How does VAT fraud work?
Typically, VAT fraud is conducted using the following means:
- Asking for cash payments
- Requesting to have payments made to someone else other than the business
- A request for several payments to be made to different individuals or businesses
- A business not being registered for VAT when they should be
- Using false VAT numbers.
Other ways businesses and individuals may try and defraud HMRC include submitting inflated VAT refund claims, not reporting the number of sales honestly and stating that sales made in the UK are exports.
What are the sentences for VAT fraud?
VAT fraud is considered serious fraud and can come with a hefty prison sentence. The maximum custodial sentence is ten years for fraud. It is possible that you may also face other VAT fraud penalties such as:
- A substantial fine, based on the amount that has either been defrauded or intended to be defrauded from HMRC. Individuals may also be fined a percentage of their relevant weekly income.
- Disqualification from being a company director. This is usually for a set period.
- Confiscation order – if you have gained financially through the fraud then the proceeds from the crime may be confiscated
- Deprivation orders
- Financial reporting order
- A serious crime prevention order.
If your case goes to trial, your sentence will be decided by a judge. Several factors are taken into consideration when determining a sentence, including:
- Culpability – your involvement in the crime
- The level of harm or intended harm
- Previous convictions
- If the offence was committed whilst on bail – a harsher sentence may be passed down
- Attempts to conceal or dispose of evidence
- Placing the blame on others
- Admission of guilt
- Mental health.
What are the penalties and sentences of VAT fraud?
VAT fraud is a specific type of tax evasion whereby a business does not charge VAT when they are required to, or charges clients and customers VAT but then doesn’t pay it to HMRC. Some businesses are not VAT registered when they should be, which can be a criminal offence and may result in a prison sentence. The maximum penalty for VAT fraud currently sits at seven years in prison or a fine with no limit. With HMRC estimating that the total cost of tax evasion in the year 2016-2017 amounted to £5.3 billion, there is no surprise that there are stringent rules and regulations in place when it comes to VAT fraud and tax evasion. Most VAT fraud occurs when people have deliberately hidden away their funds or committed fraud. You can also be accused of VAT fraud if you have failed to fill out and file the VAT section of a tax return form to report your taxable income. VAT fraud can occur on an individual level but can also take place on a more complex level by business owners. If your VAT fraud is being investigated by a magistrate’s court rather than the crown court then your maximum penalty will likely be a maximum prison sentence of six months or a fine of up to £20, 000. If you are being investigated for VAT fraud, then the chances are that HMRC has noticed inconsistencies with your tax returns or has discovered suspicious activity surrounding your accounts. If this is the case, then you’ll benefit from an expert member of the Stephensons team by your side as soon as possible so that we can build a robust defence for your case.
How is VAT fraud conducted?
VAT fraud is most commonly carried out in one of the following ways:
Asking for cash payments for a service or product that should have VAT applied
Requesting to have payments made to someone else other than the business
A request for several payments to be made to different individuals or businesses
A business not being registered for VAT when they should be
Using false VAT numbers
What to do if you are accused of VAT fraud
Whilst VAT fraud is a serious issue, it can often be as a result of a genuine mistake or human error rather than actual intent to deceive the system, which is why innocent people can be accused. If you have been accused of VAT fraud by HMRC, it’s important that you are represented by an expert so that your case can be defended properly. Even if you accused of VAT fraud as the result of an honest mistake, you can still be prosecuted if HMRC view it as deliberate. Stephensons rank in top tier of the legal 500 for fraud defence so you’re in the perfect hands for a detailed defence of your case. If you have found yourself in this situation, don’t hesitate to get in touch today.
Contact us
Our expert VAT fraud lawyers will advise you on the best course of action for your individual case. The sooner you instruct a solicitor, the better. We have found that having legal advice from the start can make big differences to the outcome of a case. We have access to specialist serious fraud barristers, should your case go to court. Contact us today on 01616 966 229.
