Fraudulent VAT Claim Case Study Gilbert Tax

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Client Story: Fraudulent VAT Repayment Claim

M approached Gilbert Tax as she had a notification of a check of the business VAT records and was concerned that she had claimed a significant amount of VAT that was not due to M based on completing the forms showing that expenditure was much higher than it actually was. This money had been used to keep the business afloat by paying staff wages and suppliers (as well as PAYE and NIC) as the business sales were low. The over claim of VAT was made on the belief that M would eventually get the sales and turn the business into a very profitable one. At this time M intended to repay all of the VAT and only did it for the benefit of the business. M benefited very little from the over claim of VAT.

This is a situation that often occurs (that is people using VAT over claims for cash flow purposes) and is one of the easiest things for HMRC to use to show that someone has deliberately over claimed VAT and that this then leads to a prosecution of the individual. The reasons behind the over claim of VAT are never considered as technically whatever the reason HMRC consider this to be VAT fraud.

Gilbert Tax immediately postponed the check of the VAT records promising to reschedule the records check in the near future and with the M's permission the Fraud Investigation Service were approached to request that they invite M to participate in the Contractual Disclosure Facility. This was done within a few days of M contacting Gilbert Tax. The reason behind this was if M was accepted into the Contractual Disclosure Facility then provided it was disclosed as part of the Contractual Disclosure Facility that there had been a VAT over claim which HMRC would consider to be fraudulent, the Contractual Disclosure Facility gives a guarantee of none prosecution for any disclosure made at the beginning of the process.

Once the protection from prosecution had been obtained then the full extent of the over claim (running into hundreds of thousands of pounds) was made to HMRC by way of a very limited scope report to HMRC. As M did not have the means to repay HMRC it was made clear to HMRC that this was the case and HMRC agreed that the work needed was only the calculation of the amounts due and a very limited letter setting out the work done.

M eventually had to declare insolvency but without the intervention of Gilbert Tax at the early stage and before the VAT compliance check was undertaken the chances are that M would have been prosecuted and received a custodial sentence and still needed to have gone bankrupt.

This contrasts with a recent case where we had to test HMRC on the figures as part of a prosecution where the person had allowed HMRC to conduct a VAT compliance check where it was clear that a VAT fraud had been undertaken where HMRC took away the records and used these to successfully prosecute the matter.

It is important for anyone who has not dealt with their VAT affairs correctly to speak to a professional before the VAT visit as it can make the difference between repaying the money or repaying the money and receiving a prison sentence.

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