What You Need to Know About VAT Fraud

Magali Sire

Magali Sire

Content manager

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Value Added Tax (VAT) is a tax added to a number of products and services in the UK. This fee is collected and paid to HMRC (HM Revenue and Customs). VAT is used to pay for several programs. VAT fraud is a form of tax evasion and those who commit it are liable for certain penalties. 


Types of VAT Fraud



Some examples of VAT fraud are as follows:



Misrepresentation of Cash



This type of VAT fraud occurs when it can be proved that a business has deliberately accepted cash payments and regularly offers its customers a refund but doesn’t charge VAT. Furthermore, the business has not registered the change with HMRC. 



Carousel Blackmail



VAT fraud occurs when no sales tax is paid on goods when they are imported into the UK and are subsequently sold at low prices to British consumers. The scammers simply pocket all the money without paying the required VAT to HMRC. 


For example: a broker brings products into the UK from another EU Member State. The broker offers the products to another company and charges VAT. The broker should collect the VAT and pay it to HMRC, but the broker is a scammer and disappears while keeping the money. 


The company that bought the goods sells them to another business and charges VAT. At this point, the company should be able to claim the VAT previously paid on the goods on its VAT return. 


The broker who originally brought the product into the country didn’t pay VAT on it. HMRC will have a problem processing the company’s VAT return due to the VAT fraud that has taken place three transactions previously. 



Missing Trader Fraud



Missing trader fraud occurs when tax fraudsters interact with similar individuals across borders to avoid paying VAT. To avoid detection from HMRC, they may use fake names or disguise their identities and contact information. 



Penalties for VAT Tax Fraud



HMRC takes VAT tax fraud quite seriously. If there is an irregularity on your tax form or HMRC finds something dubious involving your tax records, HMRC will launch a tax evasion investigation. You may face a fine if you meet these conditions:


  • You have participated in at least one transaction involving VAT extortion
  • You knew or should have known that a transaction involved VAT fraud



HMRC Information Rule



Under HMRC’s Information Rule, if it is determined that you have participated in at least one transaction associated with VAT fraud or extortion, HMRC can take one or both of the following actions:


  • Deny you the assignment of the Information Fee (or any other sales tax law)
  • Calculate any anticipated sales tax HMRC has the right to apply


HMRC will advise you in writing how much you will be required to pay as a penalty



Taxpayers’ Rights When HMRC Conducts a VAT Fraud Investigation



It would be inaccurate to say that HMRC has all the advantages when it makes its inquiries in a VAT fraud investigation. As a taxpayer, you have the following rights:


  • You can decide not to answer HMRC’s questions if the goal is to determine whether to set a penalty for VAT fraud or how much you should pay 
  • If you decide to answer HMRC’s questions, you can seek the advice of an advisor before doing so
  • You have the right to appeal HMRC’s decision about any VAT payable or penalties it decides to impose



Let Mooncard Keep Your Expense Records Organized



The best way to deal with VAT tax fraud is to avoid giving HMRC a reason to make any inquiries at all. Make sure that you are dealing with companies you know well in your business arrangements. 


When your employees need to spend money for business expenses, Mooncard corporate payment cards make tracking and organising the receipts easy and convenient. All expenditures are accompanied by a photo of the receipt, which is digitally stored for future reference.


Mooncard is compatible with 35 accounting software programs. Accounting entries are generated according to your settings and integrated into your software. There is no need to re-input entries. Your management has real-time access to the entries to generate reports or respond to any inquiries.


Would you like to learn more about Mooncard and how it can benefit your business? Contact us today to schedule your online demo

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Magali Sire

Magali Sire

Magali Sire is Marketing & Brand Content Manager at Mooncard. An entrepreneur and experienced copywriter, she has been a Swiss Army knife for over 20 years in BtoB and BtoC, research, economic and financial media and retail, and is passionate about the development of support professions.