Is HMRC prosecuting more VAT cases?
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Francois is a writer, editor and broadcaster specialising in business.
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If underpaid VAT is deliberate it is a crime and dropping a few offenders down a well in order to encourage the others is not a bad idea. What sticks in the craw though is the £20 million sweetheart deal that HMRC concluded with Goldman Sachs.
Not noticed a change
but then I'm pretty sure that my clients aren't criminals.
I think most of us have come up against sales invoices not being put in the correct quarter, which is nearly always due to a misunderstanding between cash accounting and the norm.
Do we have examples of exactly what the police are investigating?
Heavy handed VAT approach?
Rather than taking criminal action against taxpayers we have seen a different strategy which involves the increasing use of Code Of Practice 9. Those we have seen emerging have tended to emanate almost exclusively from VAT control visits. Inspectors visiting client premises are undertaking normal VAT enquiries with the taxpayer and may well then say that there are errors of a certain magnitude which will be followed up through the assessment process. We have then heard of clients not being contacted for several months to the point where they may be given to believe that someone has forgotten to raise the assessments. This of course is a false hope because the matter is being reviewed by more senior officers and usually within perhaps 4-5 months after the visit & with no assessments issued a COP9 letter lands stating that the company & its Directors or indeed partners / sole proprietor will be subject to the set protocol where any failure will lead to prosecution. Readers may know that a COP9 approach allows HMRC to sit back and await a confession of all business sins not just the VAT. Failure to report even minor misdemeanors on such things as PAYE errors or P11d reporting or personal tax areas are then dragged into the mix. I suspect it can also arise fom a PAYE Control visit. The warning to practitioners would seem to be that if a client has a control visit which subsequently appears to go quiet then HMRC have not forgotten, they are simply getting their ducks in a row for something larger.
Most of our
larger clients seem to have a PAYE vist very soon after a VAT inspection. We did hear some years ago that HMRC were to do an overall inspection rather than bits and pieces but that doesn't seem to be the case these days.
I'd still like to know the specifics of police being called in. This doesn't sound like the run of the mill errors we see.
Too Complex
I'm pretty sure a large percentage of VAT errors arise from the fact that for the average business VAT is just too complex, and they have better things to do with their time than figure out what, where, how, when, rate, exemptions, exceptions to exemptions, etc that is the current VAT mess.
Maybe rather than using the big stick approach they should look to simplify the VAT system so it's easier to understand for us mere mortals who don't have hundreds of hours to decide whether an item is an allowable VAT expense or not.
Too complex
I'm pretty sure a large percentage of VAT errors arise from the fact that for the average business VAT is just too complex, and they have better things to do with their time than figure out what, where, how, when, rate, exemptions, exceptions to exemptions, etc that is the current VAT mess.
Maybe rather than using the big stick approach they should look to simplify the VAT system so it's easier to understand for us mere mortals who don't have hundreds of hours to decide whether an item is an allowable VAT expense or not.
Totally agree with your sentiments Ian. The most complicated tax there is - makes income and corporation tax look like a piece of cake!
VAT is far too complex
This means that everyone processing VAT is bound to make mistakes. As this posting arrived I was puzzling over this Amazon bill:
Item Sold by Amazon EU SarL £9.97
Item Sold by Numerique Mondial £138.00
Total £147.97 (all good so far)
Order Summary:
Item Subtotal £146.31
Postage and Packing £3.66
Total before VAT £149.97
VAT £1.99
Total £151.96
Promotion Applied £3.99
Grand Total £147.97
No GB VAT number on the bill and from sources of supply, seems to be EU VAT, but why only £1.99 and I can't for the life of me work it out anyway. Lord only knows how a client would process this. Has anyone any clues?
Amazon vat mysteries
This means that everyone processing VAT is bound to make mistakes. As this posting arrived I was puzzling over this Amazon bill:
Item Sold by Amazon EU SarL £9.97
Item Sold by Numerique Mondial £138.00
Total £147.97 (all good so far)
Order Summary:
Item Subtotal £146.31
Postage and Packing £3.66
Total before VAT £149.97
VAT £1.99
Total £151.96
Promotion Applied £3.99
Grand Total £147.97
No GB VAT number on the bill and from sources of supply, seems to be EU VAT, but why only £1.99 and I can't for the life of me work it out anyway. Lord only knows how a client would process this. Has anyone any clues?
Is the £1.99 vat not just 20% of the £9.97 sale? Cannot comment on the Amazon vat approach, may all be down to where goods are located and of course what goods were purchased.
I could not handle legal procedeings
I have no idea how I would handle a legal dispute involving a client and the Law, its a headache i could do without. Extract close to my home.
The director of three payroll and book-keeping companies who stole over £250,000 to keep his business afloat by pocketing his employees’ tax and National Insurance Contributions (NICs) and failing to pay VAT bills has been jailed for two years.
For nearly seven years, Andrew Bettis, 43, from Maldon in Essex used the Pay As You Earn (PAYE) system to deduct Income Tax and NICs from his employees’ wages, but kept the money rather than pay it to HM Revenue and Customs (HMRC).
Further investigations revealed that his VAT returns were also wrong and that he hadn’t paid employer NICs, instead using the money to buoy up his businesses.
Who are HMRC targeting?
This link is interesting (http://www.ftadviser.com/2015/08/17/ifa-industry/tax-planning/taxpayers-...) as it indicates HMRC's change of target from HNW individuals, who can afford to defend themselves. Perhaps, by targeting taxpayers with fewer resources, HMRC will think they have been more successful.
Deliberately underpaid.
http://insidetime.org/fraud-tax-evasion-money-laundering-the-new-favouri...
Tax Evasion as Money Laundering
In R v IK [2007] EWCA Crim 491, 8/3/07 the question for the Court was whether the proceeds of cheating the revenue could be ‘criminal property’. In a nutshell, a legitimate trader had earned legitimate money undertaking a legitimate business (a shop). However, the allegation was that not all the income was declared – thus cheating the revenue.
The Crown prosecuted a money laundering offence, but the trial Judge ruled that there was no ‘criminal property’ – the money did not come from an actual crime. Following a prosecution appeal, the Court of Appeal found that the undeclared income could in part ‘represent’ the proceeds of crime, as that undeclared amount would be representative of the ‘benefit’ of tax evasion.
End of extract.
If undeclared income can constitute "criminal property" and they are able to confiscate under the Proceeds Of Crime Act, continuing increases in the numbers of criminal prosecutions seem a likely target.
There must be a gain in their ever improving ability to detect and prove the commission of fraud, with electronic evidence?
I am minded of Steed, discussed here in 2011.
https://www.accountingweb.co.uk/topic/tax/failure-notify-hmrc-results-po...
and here
https://www.accountingweb.co.uk/group/money-laundering-and-crime/calamit...
The press release pages of the HMRC are a jolly read.
They are mostly concerned with VAT carousel fraud, fraudulent repayments, cigarette smuggling, false documents, those such as Lunn, bogus professionals, and those qualified to be in a position of trust such as accountants, doctors etc.
However deliberate underpayment does feature.
http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/latest_news
Let's face it..
Let's face it HMRC & first get your house in order; you decide the rules and you prosecute people without having appropriate checks in place; whether company should be paying VAT or not. There are instances where company have exceeded threshold but yet it's status quo & HMRC like a fruitcake have no idea about loss of revenue happening...Why not start apprenticeship & train our young lads & work with business? Worth a thought..
@DJKL
Thanks for your comment. So if the £1.99 is 20% of £9.97 this would be £11.96 gross. The other item would then be £138.00 plus £3.66 P&P less £3.99 Discount = £137.67, then the total order would be £149.63. This is £1.66 more than actually paid!!
My guess is that the Amazon EU Sarl is EU VAT and the Numerique Mondial is not VAT Registered for some reason. Trying to find anything on the Amazon website is difficult apart from the fact that Numerique Mondial orders (who are a small presence on Amazon) are fulfilled by amazon.co.uk.
Still at a loss to work this out! I suspect the promotional discount was applied to the larger item and the P&P could have been an apportionment. As there was no GB VAT number, I have just processed this as a non VAT item, but I would have thought Amazon had a duty to provide a breakdown. I know we have the £250 rule for detailed VAT bills, but these look like different sources of supply, consolidated on to one order. I always have problems like this with Amazon.
The items were a mobile phone and a mobile phone case, which would both normally be subject to 20% UK VAT.
20% of £9.97 is
£1.99 so £9.97 is the gross.
What about the triangle effect (ABC). If goods are sent to the same country then vat is applied. If it comes from another EU country no VAT but both registered companies should put their VAT nos. on invoice unless there has been change.
As someone bled by PAYE
I find it encouraging to see that those who have take advantage of their opportunity to fiddle are getting punished. More prosecutions and harsher sentences for those found guilty please!
HMRC Spokesperson.
Was the HMRC spokesperson that "denied any change or particular clampdown" referring to a clampdown on VAT not being paid above and beyond a general clampdown?
Perhaps they were not aware of the VAT Initiative Campaign and the targets which are referred to in the policy publication here.
https://www.gov.uk/government/publications/2010-to-2015-government-polic...
Their pressroom gives a different impression, of a streamlining digital taskforce, which is smaller and more efficient and exacting greater tax compliance than ever and busting tax cheats.
http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressreleases/hmrc-...
Their annual report and accounts for 2014/15 were published in July.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...
Then there is this.
http://hmrcdigitalpilots.com/compliance/
HMRC publications and pressroom are big on heralding their 60 task forces and clamp downs galore. They are closing in, and closing in some more. When you read their missives it sounds more like an army of immense resources marching on tax evasion, coming up through the drainpipes and getting the unpaid taxes into their coffers in bigger than ever sweeps of the Nation.
But if the spokesperson says "Hmmm VAT nah, not particularly no, not got no intensity going there dude" good for them. They have managed not to get caught up in the tax collecting fever. Lets hope Lin Homer doesn't catch them displaying such indifference and unexcited prose. They might be made to colour in pie charts or something until they get on track.