Not all businesses need to be VAT registered. But if your business has a VAT taxable turnover of more than £85,000 then you must register your business for VAT with HMRC.
Once you are VAT registered then you will have certain responsibilities to fulfil including;
- charging the right amount of VAT
- paying any VAT due to HMRC
- submitting VAT Returns
- keeping VAT records and a VAT account
Not fulfilling these responsibilities or taking actions which mislead HMRC can carry serious consequences for your business. Here we look specifically at VAT fraud – what it is, what the penalties are and the impact it can have on your business if you are found guilty of VAT fraud.
What is VAT fraud?
Information on the gov.uk site define VAT fraud as a type of tax evasion.
There are effectively two ways in which VAT fraud can be committed. The first is when your business does not charge VAT when they should. The second is when your business charges VAT but does not pay it to HMRC.
Is VAT fraud a criminal offence?
Yes, it is a form of tax evasion and as such can be prosecuted as a criminal offence.
What are the penalties for not paying VAT?
There can be several different penalties for VAT fraud, including:
- financial penalties – usually linked to the amount of tax evaded
- the risk of a prison sentence, depending on how severe the offence is
- liability for company officers
- inclusion on a list of people involved in transactions connected with VAT fraud
VAT fraud and tax evasion are serious offences which attract serious penalties. And it is an area taken extremely seriously by HMRC.
What impact could committing VAT fraud have on your business?
If you or your business is directly involved in committing VAT fraud it can have a significant impact on your business. You can face a heavy financial penalty or face imprisonment. You may also suffer damage to the reputation of your business which can impact your ability to attract clients.
But your business can also suffer consequences for being found indirectly guilty of VAT fraud, for example by enabling VAT fraud. The Corporate Criminal Offence (CCO) has made it a criminal offence if an organisation fails to stop those acting on its behalf from facilitating tax fraud.
Government guidance states that ‘your business may commit one or more of the offences when a person providing a service for or on your behalf criminally facilitates tax evasion and you did not have procedures in place to prevent it.’
Consider whether you have adequate insurance protection in place to defend yourself against such a claim. This can be through cover such as Professional Indemnity insurance or Directors and Officers insurance.
How can you spot VAT fraud and how can you report it?
There are several things that you can look out which may be an indicator of someone committing VAT fraud. These include someone
- asking you to pay cash to avoid paying VAT on a sale or job
- asking you to make the payment to someone other than the business, or several payments to different people or businesses
- not being registered for VAT when they should be
- claiming to have applied for a VAT number when they have not
- using a VAT number that’s false or belongs to someone else – check a UK VAT number is valid
VAT fraud can be reported online via the HMRC Fraud hotline. This can be done anonymously – you do not have to give your name when reporting suspected VAT fraud.
At Anthony Jones we appreciate that business owners and those responsible for the running of a business face many different risks. If you have any questions about your small business insurance and the type of insurance you need for your business, you can speak to us here at Anthony Jones. Call us on 020 8290 9080 or email us at firstname.lastname@example.org.