Deliberate loss of VAT

Introduction – The tax issue and its importance

The tax issue concerns the deliberate claiming of input tax by means of false invoices, which were issued for supplies that were never made. This is important as it concerns the integrity of the VAT system, ensuring that businesses accurately report and pay their taxes. Deliberate fraud undermines the tax system, leading to loss of government revenue and unfair competition between businesses.

Problem in the case

In this case the issue was that HMRC had assessed Lancer Scott Ltd for claiming too much input tax on its VAT returns between September 2006 and December 2009. The issue revolved around false invoices for supplies which had not been been carried out, with the company accused of having participated in related transactions. to VAT fraud.

Taxpayer’s argument

Lancer Scott Ltd argued that HMRC’s assessment was published too late, suggesting that HMRC had sufficient evidence to raise the assessment before the critical panel file was received in a related criminal prosecution. They claimed the evidence HMRC needed to make this assessment was already available to them during the trial of Mr Folwell, who was convicted of money laundering and was linked to the company.

HMRC’s argument

HMRC argued that the input tax claims were based on non-existent supplies and that the company had knowingly engaged in transactions relating to VAT fraud. They presented extensive evidence demonstrating that the invoices were false and that the taxpayer had engaged in fraudulent activity. HMRC also argued that its assessment was timely because it was published within a year of receiving sufficient evidence from the criminal prosecution jury.

Result/Decision

The First-tier Tribunal (FTT) sided with HMRC, accepting their evidence that the appellant had deliberately claimed too much input tax using false invoices. The FTT found that the majority of items claimed had not been supplied and that the excessive requests were intentional. Consequently, the appeal against the overclaimed input tax contribution and the associated penalties was dismissed.

Implications for customers

For our clients, this case demonstrates the importance of maintaining accurate and honest records for VAT purposes. It highlights the extended time frame HMRC has to assess cases of deliberate VAT fraud, which can be up to 20 years. Customers must ensure their transactions are legitimate and properly documented to avoid harsh penalties and assessments. Additionally, the onus is on the taxpayer to demonstrate the accuracy of their VAT claims, underscoring the need for thorough and transparent accounting practices.

Next steps

At ETC Tax, we pride ourselves on our values, with excellence at the forefront. We are committed to ensuring your records are both up to date and accurate, so you can avoid the stress of HMRC assessments. If you require further advice on VAT, a complex tax area, please contact us today. Our team is here to help you meet these challenges with confidence and expertise.