Value Added Tax is a major source of revenue for the UK government, totalling over £120 billion during 2018.

As such it is the tax for which HMRC take the most serious action when late, incorrectly reported, or where fradulent activity is suspected

In this article we’ll explore some of the most common VAT problems, as well as those which you should be particularly cautious about.

Common VAT Problems


Understanding the tax point (the moment for which each transaction’s VAT is accountable) is crucial. Business owners should always be aware of the dates for the particular VAT return period, and prepare accordingly.

Record Keeping

The daunting task of accounting for an entire nation’s VAT depends upon meticulous record keeping and accurate paperwork. As such, HMRC asks that VAT invoices contain sequential unique identifying numbers, the tax point, VAT rate, the total excluding VAT; plus the VAT amount and the total payable.

Not Keeping up to Date

Like all major taxes, VAT is constantly evolving. Ensure you’re up to date with the latest legislation, are using good digital accounting software, and have a dedicated team member in charge of this area.


This crosses over with timings and record keeping but, as a general rule, it covers everything. Avoiding mistakes, understanding legislation as it pertains to all aspects of your trading, and maintaining accuracy will mean the VAT experience is as seamless as possible for your company.


The Problem of VAT Underpayment

In recent years, HMRC has responded to what it calls ‘VAT avoidance epidemic’, with an estimated ‘10 percent of all businesses believed to be underpaying VAT.’

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, rather than using civil action such as penalties and interest charges.

Research shows that HMRC is focusing its criminal investigations on less complex, lower-value cases, such as evading income tax, VAT and tobacco, where 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.   

HMRC’s criminal investigation policy, 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.’

When Does HMRC Press for Criminal Charges ?

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.

Serious VAT 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.

Need help?

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 0800 074 6757 or email: for confidential and free advice from one of our professional advisors.