VAT: Inspections and Investigations

If, for any reason, the HRMC finds fault with your records or returns, they may ask you to a meeting. This meeting serves to ask questions about your business records, your revenue and your business dealings. They will ask you to answer questions of any sort in order to find out further information to support or deny your claims. You do not need to bring all of your records to this meeting, but simply and clearly answer their questions. They are not out to prosecute you but to manage and support your claims.

You are expected to keep all of your business and personal records, including the computer records, at your place of business, in good standing, in case the officers decide to visit your premises. Once that is done, they may decide whether or not you owe them a balance, and if so, you sign a letter saying so. Then a formal estimate is sent to you at which point you can further argue with support that you do not owe that much or any at all. The point being is that you should speak up at the first meeting and disclose all of your dealings to the officers conducting the meeting.

The reason for investigations is that there had been an inordinate amount of fraudulent bilking of VAT claims in the past few years. So much so, that the HMRC has had to hire more than 100 new officers to cover this additional workload. They are trying to uncover the businesses who are constantly trying to make false VAT claims and possibly prosecute them, which may result in a term of imprisonment or at the very least, a hefty fine. Also, every new registration for a VAT number must be investigated beyond the call of duty. Visits to the premises, background and police checks, credit and bank checks must be done to cull the false business dealers.

The Carousel Fraud

Recently it has come to the attention of the HMRC that there is a new scheme being tried with imported goods and it is costing the revenue service billions of pounds. The name of the case being investigated in Nemesis, which is a computer database containing the identification number of every mobile phone which is exported from the UK.

However, first the phones have to be imported from another country. Phones are easily imported in bulk because of their small size and easy market sales. So millions of them are imported into the country and they are a favourite commodity in the MTIC, which is the Missing Trade Intra Community.

As the phones are shipped out of the country, the packages are stamped by our customs officers at the docks or airports. Then, the phones are scanned and their numbers are entered into the Nemesis system. Once the phones are on the move they go on a circular trip to other countries in the EU, or a carousel, in and out of the country several times, and each time the dealer claims VAT refunds for their imports.

During tight economic times there has been an upsurge in this type of import and fraudulent behaviour which costs the UK taxpayers billions of pounds. Gangs are now being deployed to help in the criminal act and there are more risks being taken by all involved. It seems that the stakes are higher and it is becoming easier to perform.

Illegal Assistants

MTIC has been the most serious attack on the country’s revenue system in a long time. And now we are finding that some tax accountants and legal advisors are assisting in the fraudulent activities. Several certified legal advisors from a small legal shop in Rosebank Gardens, which had been closed down three years ago, had their hands in laundering over £200 million worth of VAT fraud, via the client account of their employers.

Due to confidentiality, the HMRC is unable to advise of the names of the dishonest legal accountants in order to put them out of business which frustrates the chairman of The Accountant’s Board. When there are still court hearings ongoing in this regard, everything must be masked in confidentiality.

The only way for the HMRC to recoup some of the missing money or fraudulent VAT claims is to watch the number of claims being made by one trader or importer. Once the trader has amassed a significant amount of claims for what appears to be the same imports, then the officers can make a move. Also they can refuse to allow registration for a VAT number to anyone who appears to be an illegal trader due to background checks. On top of that, the HMRC can ask the potential trader to put down a deposit for a VAT registration, in case of future problems, in which the deposit is applied toward the losses.

In another investigation into HMRC fraudulent VAT claims, the Republic of Ireland’s Revenue Commissioners reported that they have seized 2000 bottles of wine. It is just a small amount of money and wine but it is the right step in stopping criminal behaviour from crossing the border in organised groups. It does not matter if it is alcohol, cigarettes or fuel.

Scotland has not gone unscathed in the VAT fraudulent claims. In 2000, a Robert Jones bilked the tax office of £4.6 million, while importing computer chips from another country. In a carousel programme of his own, he never paid the VAT which he had claimed and he amassed such a heavy amount of claims which put him under investigation. He was ready to set up more businesses in southern England and in London, as he was arrested and put on trial.

So the business of inspecting and investigating VAT claims is a huge struggle to have everyone own up to their business and prove they are running a proper shop. One must be beyond the letter of the law and keep fastidious records to remain out of the glare of the HMRC. Some would say that their tactics of investigations are a bit severe, but in any instance it is best to be cautious rather than reserved, and lose a lot of money.