Pursuing a criminal prosecution is the most serious action HMRC can take against a company that has not properly met its VAT obligations. In recent years, HMRC has stepped up the proportion of VAT underpayment cases it is prosecuting criminally, rather than using civil action such as penalties and interest charges.
This is in response to what HMRC believes is a ‘VAT avoidance epidemic’, with an estimated ‘10 percent of all businesses believed to be underpaying VAT.’
This rings true with HMRC’s criminal investigation policy, which states: ‘Criminal investigation will be reserved for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate.’
Given HMRC’s concern that VAT is underpayment is on the rise, it seems more businesses are now facing criminal prosecution than ever before for smaller amounts of unpaid VAT. Research shows that HMRC is focusing its criminal investigations on less complex, lower-value cases, such as evading income tax, VAT and tobacco, were successful prosecutions are more likely. The result is that serious tax evaders, such as those guilty of underpaying or even failing to submit corporation tax returns, are getting away scot-free.
When does HMRC press for criminal charges rather than a civil action?
HMRC would consider a criminal charge rather than a civil action in cases where:
- Deliberate concealment, deception, conspiracy or corruption is suspected;
- Forged or false documents are involved.
However, HMRC seems to be taking the stance that every VAT error or omission is deliberate at the moment. It was once thought that HMRC would only seek prosecution for significant amounts of underpaid VAT, but now we are hearing of incidents of smaller amounts of tax being prosecuted criminally.
Examples of Criminally Prosecuted Cases
VAT cases that may be prosecuted criminally include those where:
- VAT ‘Bogus’ registration repayment fraud is suspected;
- Materially false statements are made or materially false documents are provided in the course of a civil investigation;
- An individual holds a position of trust or responsibility;
- Organised criminal gangs attack the tax system;
- Reliance is placed on a false or altered document;
- False or forged documents are used;
- Deliberate concealment, deception, conspiracy or corruption is suspected.
One factor that determines whether a civil or criminal investigation is sought is whether the taxpayer has made a complete and unprompted disclosure of the offences committed. If a case is successfully prosecuted criminally, it may lead to imprisonment.
If you have been informed that you are the subject of an HMRC enquiry into VAT, or are concerned that a case you are involved in could be prosecuted criminally, please call 08000 746 757 or email: [email protected] for confidential and free advice from one of our professional advisors.