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.
What is VAT Repayment Fraud?
False claims to VAT refunds are a form of VAT fraud, where a business submits VAT returns claiming a net repayment of VAT on the basis of, for example, zero rated exports supported by false export documents or certificates of shipment. The goods themselves remain in the UK and are sold at a VAT inclusive price, usually for cash and unrecorded in both the vendor and purchaser’s business records. They may also be sold under cover of false sales invoices to dupe prospective buyers as to the authenticity of the transaction, but also to add further VAT to the profit.
Repayment frauds can be single cell frauds i.e. where one individual or business is involved, or multi cells, where a systematic attack on the VAT system is undertaken by one or more individuals using several businesses, with VAT returns being submitted from businesses with addresses in different parts of the UK to prevent the VAT authorities from connecting those behind the frauds. HMRC has improved the exchange of information procedures within its organisation to identify this type of fraud as soon as possible, but failures to identify missing traders in the early stages of carousel frauds highlighted the vulnerability of the VAT system to organised criminals.
Penalties for VAT Repayment Fraud
Indictments usually include offences under VAT Act 1994 s 72, and/or the common law offence of cheating the public revenue.
Please click here for more information on HMRC Penalties.
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