Avoiding potential VAT fraud
How to avoid VAT penalties “by not becoming involved in any transactions connected with VAT fraud’’ VAT fraud has been an ongoing issue for many years, but its recent growth […]
How to avoid VAT penalties “by not becoming involved in any transactions connected with VAT fraud’’
VAT fraud has been an ongoing issue for many years, but its recent growth has prompted HMRC to produce what can only be seen as a warning to those in business, to ensure they do not become involved in it. And as the new generation of accountants, it’s vital you stay ahead of the game.
Penalties for VAT fraud
The new “Penalties for transactions connected with VAT fraud’’ factsheet outlines HMRC’s punishment system whereby it claims the full amount of underpaid VAT, as well as imposing a 30% penalty. So, for every £1,000 in VAT that was not paid, the company will have to pay £1,300. In what the HMRC considers the more serious cases, it will also publish the details of the companies – and sometimes the individuals – involved.
However, the good news for accountants is that the HMRC document also explains how companies can avoid penalties for VAT fraud in future “by not becoming involved in any transactions connected with VAT fraud’’.
How to avoid it
As well as tips on how not to engage in potentially fraudulent activity, HMRC also provides advice on ‘How to spot missing trader VAT fraud’ which is a worthwhile read, emphasising the need for anyone in business to make proper checks on current and potential customers and suppliers.
Missing trader fraud is committed when goods are imported VAT-free from EU countries then sold on at prices that include the VAT, but the seller never pays the VAT received from the sale. Complex networks of companies and lengthy chains of transactions are often used to repeatedly sell the same goods and disguise the fraud.
HMRC’s guide is effectively its way of telling business how to behave so that the taxman is not defrauded out of VAT. It informs those in business they need to make judgements regarding the integrity of their supply chains by assessing the background and credibility of those they trade with and the legitimacy of the goods that are being traded. And as we always teach – it’s always best to play by the rules.
Safeguarding your business
HMRC expects any checks carried out to be “appropriate, adequate and timely in relation to addressing the risks identified’’, yet it also makes it clear that HMRC will not tell those in business exactly what checks should be made – it’s up to you as the accountant to use your own due diligence.
HMRC’s call for checks on the parties and products in a transaction makes perfect sense. As does its emphasis on checking all available documentation. But a company also has to take a forward-thinking view of fraud prevention. It needs to examine its workplace procedures to see if they are fit for purpose. Are they capable of preventing – or at least identifying – VAT fraud? If not, new procedures must be devised and introduced. If a company feels this is beyond its capabilities, it needs to enlist expert help to ensure this challenge is met properly.
Get up to speed
Procedures can be meaningless if the people that they apply to are unaware of the seriousness of VAT fraud, which is why staff training has to be seen as an essential component of any prevention strategy.
If staff do not know what tell-tale signs to look for or how to respond to them, there will be little chance of VAT fraud being recognised and tackled. This could be your opportunity to lead an important project at work.
Some types of business may, through no fault of their own, face a greater risk of VAT fraud. These include firms with a large number of traders involved in a chain, complex payment arrangements, and varying jurisdictions that goods are moved between.
If you’re unsure of how to proceed, speak to your manager and don’t be afraid to seek expert help. It’s better to be safe than sorry!
