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Would you know how to cope with a VAT investigation?

HMRC tax investigations Mazars
I recently met with Robin Simpson who is one of Mazars' Directors of VAT. He explained to me that HMRC have increased their efforts to investigate VAT evasion. He recalled that in the late 1970ís Customs and Excise got high profile press coverage because of their heavy handed and overzealous tactics of dawn raids and home searches.

Robin reminded me that in those days, if a prosecution was not made, fraudulent evasion of tax often lead to what were known as compound penalties of up to 100% of the tax evaded. These compounds were something of a "horse trading" exercise with the VAT investigators usually getting pretty much what they wanted.

These days the assessment of penalties is more structured but can still be up to 100% of the tax evaded. HMRC now have to be more considered in their approach but Robin highlighted that from his experience this does not remove the risk that certain officers will adopt an overenthusiastic approach; investigating targets and imposing their view on what they consider to be the exact nature and seriousness of the misdemeanour. You can look at recent VAT Tribunals and see examples where HMRC’s imposition of penalties and suggestions of dishonesty have been overturned in favour of the taxpayer.

Robin explained that there is a better chance of reducing the penalty if the taxpayer cooperates with HMRC.  Nevertheless, he pointed out, an investigation leads to disruption of the business due to time being consumed in dealing with the intensive enquiries made by HMRC investigators. 

Robin went on to explain that you have got to get some control over the investigation and you must be seen to be working with HMRC. I asked whether this meant that you end up doing the work for HMRC.  Robin stressed that it is better that it is done in a structured and controlled manner that has been agreed with them in advance.

HMRC Tax Investigations Fact SheetRobin suggests that if your business is subject to an investigation you should take five important steps at the outset which we have summarised in this handy fact sheet, free for you to download.

You can choose to handle these matters in house or alternatively consider using an external consultant.  Robin was keen to stress that if you let HMRC run the process themselves, you won't get the best outcome and you will end up potentially paying an amount larger than is necessary.

We have to accept that VAT and tax fraud is a serious issue in the UK and the EU. The tax authorities have a responsibility to catch the fraudsters. Only recently the European Commission issued a draft directive to allow member states to implement a "quick reaction mechanism” to combat fraud. This is a measure to detect innovations in carousel fraud and similar structures, it shows a real commitment to prevent tax fraud in general.

Robin concluded that with good management of VAT investigations from an early stage a repeat of the late 1970s bad press for Customs and Excise should be avoided, benefiting the taxpayer and HMRC.

Stephen Smith
Managing Director
UK Training (Worldwide) Limited



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