Value Added Tax (VAT) is a charge made on a supply of goods or services made in the UK which are classed as taxable supply. VAT must be collected by a taxable person in the course of business. A taxable person is a person required to be registered for VAT purposes. Input tax is a tax paid by a particular person on the supply of the goods and services to that person. Output tax is a tax charged by a business when it is supplying goods and services.
VAT fraud is the simplest and most prevalent form of VAT fraud uncovered by HMRC. Here, VAT registered traders are accused by HMRC of failing to declare their actual or true liability on VAT returns by suppressing sales or inflating purchases, and sometimes both. Cash-based businesses such as restaurants, pubs, taxi firms, and launderettes are the main suspects targetted by HMRC.
HMRC usually deal with these cases under the civil evasion penalty regime. In relation to VAT and VAT credits, the prescribed penalty is 100% of the amount evaded and with respect to refunds and repayments it is the aggregate of the amount of input tax which was overstated and output tax which was understated. Penalty mitigation may apply (in terms of a reduction up to 40%) if one is able to self-report and provide an early and honest explanation.
Sometimes though, if the case meets one of the criteria for criminal prosecution, then HMRC will seek to commence proceedings in the criminal courts. Intentional evasion of VAT is an offence under section 72(1) of the Value Added Tax Act. The maximum penalty at the Crown Court is 7 years imprisonment and unlimited fine.
Our lawyers have the necessary expertise to effectively liaise with HMRC in respect of any inquiry, and if necessary assist our clients in either the civil regime before the civil courts/tax tribunals or to defend our clients before the criminal courts.
HAS HMRC MADE YOU PART OF A VAT INQUIRY? We are able to provide clear advice to assist you. Our Tax Disputes professionals are available to give information and advice for businesses that wish to register for VAT and/or make an organised disclosure to HMRC. To contact one of our specialist VAT Lawyers please click here or call 02071830529.
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