VAT refund investigations on the rise

Money, News

HMRC’s VAT investigations soared up by half in 2012/13, reaching their highest level in five years with 584 refund claims selected for the taxman’s extended verification process.

A figure up from a comparatively meagre 405 in 2011/12, it’s thought that sophisticated scamming by Scarface types fuelled the rise, new HMRC legislation coming a cropper in face of criminals.

Inside HMRC concerns abound that the 2011 VAT rise to 20% might have incentivised criminals to exploit loopholes in European VAT laws, through so-called ‘carousel’ frauds, which take advantage of VAT rules concerning the import and export of goods in the EU.

In these frauds, tax authorities make a VAT repayment to a business for the VAT on the purchase of a good or service, but receive no VAT in return from other parts of the supply chain for the sale of that good.

Relying on lengthy circular supply chains controlled by criminals, small, high value items – anything from electronic goods to alcohol, and even wholesale gas and power – are seen as typical targets in the frauds, as they’re easier to trade cross-border in high volumes and values.

Legitimate businesses are getting caught up in all this criminality and, as such, facing delays in receiving VAT refunds, whilst the taxman takes action to seek out the fraudsters.

What does this all mean for freelancers and contractors? Well, just make sure you keep an eye on your supply chains (if you have one) and keep an eye out for any suspicious activity.

Elsewhere, criminals, watch your back. With HMRC yearning for the ability to run red lights, it might soon be a little harder to shake them off your tail…

Photo by Laszlo Ilyes