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HMRC launches VAT amnesty campaign

31st May 2011
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HMRC has launched a new amnesty campaign targeting businesses trading above the VAT threshold without being registered.

The VAT crackdown is set to hit later on in the summer, giving those who are unregistered for VAT to get their affairs in order.

The initiative is expected to run along the same lines as previous campaigns where HMRC encouraged non-payers to disclose what they owe before taking action against those who failed to come forward.

Campaigns in the past have targeted offshore investments, medical professionals and people working in the plumbing industry. These campaigns have been aimed at reducing the tax gap by focusing on areas where a significant underpayment has been identified.

Mike Wells, HMRC director of Risk and Intelligence, said the VAT initiative would act as a model for future campaigns: “We look forward to being even more open about the compliance activity HMRC is undertaking to ensure we reduce the tax gap and help customers pay what they owe.”

While this new data analysis-driven campaign has been widely welcomed, some feel it is long overdue.

John Cassidy, tax investigation and dispute resolution partner at PKF, said:  “This is the sort of basic check one would have expected to have happened even back in the days when the Inland Revenue and Customs and Excise operated independently - I find it amazing that it seems not to have occurred before in a systematic way. At least HMRC is now consulting on the design of the disclosure facility it plans to offer as part of the campaign.”

So far HMRC has raised more than £500m from voluntary disclosures and a further £100m from follow-up activity.

According to a recent HMRC statement, the department provides “simple, straightforward opportunities for customers to put their records in order on the best possible terms, followed immediately by activity focused on the non-compliant who choose not to take up the opportunity.”

HMRC is encouraging anyone who has unpaid tax to come forward and make a voluntary disclosure - the current VAT threshold is £73,000 turnover on a rolling annual basis.

Billy Cairns, VAT partner at PKF, added: “The penalties and surcharges for failing to register for VAT are so swinging that anyone who lets things slide for a year or more will be facing a huge bill if they do eventually decide to come clean by registering. So, if HMRC does offer some form of low penalty for voluntary disclosure, like it has with its direct tax disclosure facilities in recent years, it could turn out to be a very good deal.

“It is not unusual for business owners to decide that they will never return enough turnover to be VAT registered – no matter what level of income they actually achieve in each year in cash terms! So if HMRC really wants this campaign to work, any voluntary disclosure facility it offers must also cover undisclosed income from cash in hand activities that haven’t gone through the books.”

Cassidy added: “We expect HMRC will have learned from the low take-up of other recent amnesties that it must take a carrot and stick approach: offer low penalties for those who come clean, but follow up with detailed investigations into those who don’t. For example, if you have shown turnover just below the VAT registration threshold every year on your income tax return and don’t use any amnesty that is offered, you can expect a compliance visit or business records check from HMRC in the future.”

Individuals, organisations or businesses wishing to join the VAT Initiative discussion, should contact HMRC’s Nicky Prys-Jones.

Replies (6)

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By hally993
06th Jun 2011 13:10

VAT amnesty penatlies

Has HMRC announced how the scheme will work and whether there will be reduced penatlies for disclosure.

What about time to pay if the amount due is quite significant?

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By wingco44
06th Jun 2011 14:02

VAT Amnesty - unworkable?

I really don't see this is any different to the rules as applied today.  If you 'own up' to HMRC there is a reduced penalty regime (15% normally)  Are they suggesting a lower than 15% penalty?  If you fail to advise HMRC and they come after you, the penalty increases substantially.

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By Vaughan Blake
06th Jun 2011 14:15

Is it me?

Why do we need an amnesty or indeed a "crack down" on this? 

If non registered "customers" have been filing tax returns with turnovers above the VAT threshold why has it taken HMRC over 35 years to catch on? 

I cannot believe that any non VAT registered businesses are filing tax returns showing turnovers over the limit knowingly as part of a tax dodge.  These cases will be out of simple ignorance, so why not put on the CT600 and Self Assessment returns a box to enter your VAT reg if the limit is exceeded and a further box to complete to explain if you have not registered.


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By richardterhorst
06th Jun 2011 15:02

HMRC not fit for purpose?

Compared to a supposed 3rd world country (South Africa) HMRC is archaic, disorganised, inefficient etc.

It was a rule of thumb for accountants preparing year-ends to match VAT declared with final figures and to have full justifications on file (with payments made by client) when VAT amounts due were altered due to year-end adjustments because revenue computers automatically compared declared VAT sales with statutory accounts sales. Standard letter requesting explanations send. Any timing differences had to be fully explained in a schedule.

No explanation, flagged for non compliance (and more rigerous checks subsequent years) and fines.

VAT amnsety (which they had) was for the black market. But again they catch people as statutory requirement to declare all assets each year and these were automatically cross checked with bank data (required to be submitted by banks), land registry, DVLA equivalent, DOT (yachts) and Stock Exchange. They caught plenty!

Revenue authourities had specific persons responsible for files (always in major local offices) so revenue staff knew more about you than the accountants did. Any problem you could phone the person direct and sort the problem out over the phone in minutes. Not only that as local (or reasonably so in large cities) a visit sorted any problem out chop, chop except if fraud committed.

Not that it was all roses though. Averice reigned there too and there always were rotweilers and "difficult" staff. But you got away with little.

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By Andrew Dinkenor
06th Jun 2011 15:52

VAT compliance visits

The article suggests that there will be compliance visits for those consistently submitting tax returns showing turnover just below the VAT registration threshold.

This will be a waste of time for both the compliance team and my clients, as many businesses legally keep their turnover just below the VAT threshold level, becuase it is uncompetitve for them to VAT register particularly in the catering and sole-trader professional services businesses, selling to non VAT registered customers and clients.










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By Malcolm Veall
08th Jun 2011 09:27

Consistently below the threshold


You are right - but I am sure that the results will be productive for HMRC and so your compliant clients pay the price in terms of time lost dealing with HMRC.

BUT There is a culture in some of these trades that staying, illegitimately, unregistered is acceptable, that registration is somehow a matter of choice - I have clients who grind their teeth at being materially over the threshold and my telling them that they have to stay registered; they should eventually feel that my advice was right as some of their unegistered competitors face penalties.

In fact, some of these clients gain from VAT, as long as they are as busy as they could be anyway, the Flat Rate Scheme can be a "nice little earner" for them.

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