44% increase in HMRC VAT investigations for 2012-13

10th April 2013

The number of VAT refund investigations carried out by HM Revenue & Customs (HMRC) has increased by 44 per cent over the last 12 months.
 
HMRC selected 584 refund claims for its extended verification process (EVP) for the 2012-13 tax year, as opposed to 405 claims in 2011-12.
 
It is the first rise in the number of VAT refunds in five years; amid concerns within the HMRC that the January 2011 increase in VAT, to 20 per cent, encouraged criminals to exploit loopholes in European VAT legislation in the UK.
 
HMRC estimates VAT fraud is currently costing around £1 billion in avoided VAT repayments. The European Commission also believes that VAT fraud costs the EU billions of euros each year. In the 2008-09 tax year it was estimated that a total of €5 billion (£4.3 billion) was lost as a result of VAT fraud relating to emissions allowances.
 
A typical VAT scam sees criminals take advantage of VAT rules concerning the import and export of goods in the EU.
 
This kind of ‘carousel’ fraud results in tax authorities making a VAT repayment to a business for the VAT on the purchase of a good or service, but receiving no VAT in return from other parts of the supply chain for the sale of that good.
 
Jason Collins, head of tax at law firm Pinsent Masons, has voiced concern that some legitimate businesses are suffering as a result of HMRC’s latest crackdown.
 
"VAT refunds can be quite sizeable, so delays in receiving them can hit a business’ bottom line," he said.
 
"In the case of genuine businesses that aren’t committing fraud, these VAT refunds belong with them, not HMRC.
 
"HMRC might take action if there is VAT fraud being carried out somewhere in a company’s supply chain, or if HMRC suspects a company’s products are being used to carry out frauds.
 
"It’s very important that companies know their supply chains like the back of their hand and that they’re on the look-out for any suspicious activity."
 
An HMRC spokesman added: "Only a very small number of over two million claims we receive a year are subject to extended verification checks and the vast majority of businesses receive VAT repayments within days. These checks, alongside HMRC’s wider missing trader fraud strategy, have reduced the level of fraud by 75%."

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