In this section:
- Visits by VAT inspectors
- VAT investigations and prosecutions
VAT investigations and prosecutions
If we believe that there are grounds to suspect that there are irregularities in your tax affairs, we will invite you to attend a meeting.
This guide will outline what to expect during investigation, and how agreements, penalties and prosecutions are carried out.
The aim of this meeting is to uncover the full facts, determine the tax liabilities arising and collect these together with interest and, where appropriate, civil penalties for fraudulent conduct. The meetings are not conducted with a view to your prosecution for tax fraud.
On this page:
- Investigations
- After the meeting
- Records
- Reaching an agreement
- How interest and penalties are worked out
- Prosecutions
Investigations
Before we begin an investigation, we will look at information in your returns, accounts and statements, and information from other sources. We may also contact other people or organisations before contacting you.
If we believe that there are grounds to suspect that there are irregularities in your tax affairs, the next stage of the investigation will be to invite you to attend a meeting. The aim of this meeting is to uncover the full facts, determine the tax liabilities arising and collect these together with interest and, where appropriate, civil penalties for fraudulent conduct. The meetings are not conducted with a view to your prosecution for tax fraud.
You don't have to attend the meeting and respond. If you do, you will be asked to provide a disclosure report explaining the full facts. Your disclosure report should detail, with supporting evidence, the nature, extent and reason for any tax irregularities.
If you choose not to attend and respond, we'll conduct a thorough investigation of your tax affairs and will take into account your lack of co-operation during the course of the investigation in determining the level of any penalties due.
After the meeting
We will discuss your disclosure report with you and your advisers. If you need more time to make a more complete disclosure, we will suspend our own enquiries provided we're satisfied that matters are progressing towards a full disclosure of tax irregularities within a reasonable period of time.
If you're not making satisfactory progress towards the disclosure, we'll carry out an investigation. If this happens, it will be reflected in the level of any penalties charged.
It is your responsibility to ensure the disclosure report is accurate and complete to the best of your knowledge and belief. If you're satisfied that your report is a complete account, you should sign it as representing a full disclosure of irregularities, and submit it within the agreed timescale. You may be asked for other certified documents such as statements of your assets and liabilities and of bank and other accounts including debit and credit cards operated.
Records
You should make sure that you keep all existing records - including computer records - during the investigation, whether or not you're required to do so by law.
We may ask to see your business and private financial records. These can be examined at your premises. Where necessary, we may ask to retain original records or copies.
There may be occasions when we exercise statutory powers conferred on us and remove certain records from you. If this happens, you'll be provided with a receipt for those documents. If asked, we'll provide copies to you and at the end of the investigation we'll return the originals to you.
Read our guide to visits by VAT officers
Reaching an agreement
If the investigation finds nothing wrong with your tax affairs, we'll let you know that our investigation has finished. However, if any irregularities have been identified, we'll write to you to tell you how much tax and interest is due, and will also let you know of any penalty due.
If you agree with our figures, you should sign and return a copy of the letter. Once that has been done, you will receive a letter formally notifying you of the assessment for tax, interest and any penalty. This letter will ask you for your payment, less any amounts paid on account.
If you don't agree with our figures, you can send us any additional comments or information.
How interest and penalties are worked out
Interest is calculated on any tax paid late. In some cases you may also be charged a surcharge.
The maximum penalty is an amount equal to 100 per cent of the tax understated. The level of penalty can be significantly reduced in certain circumstances.
If any irregularities due to dishonest conduct are identified, a civil evasion penalty will normally be applied.
How penalties can be reduced
The maximum penalty of 100 per cent tax evaded is reduced by an amount that depends on whether you have disclosed full details of the true VAT liability, and the extent of your co-operation during the whole enquiry.
Reductions from the 100 per cent penalty figure will normally be made as follows:
- up to 40 per cent reduction for early and truthful explanation as to why the arrears arose and the true extent of them
- up to 40 per cent reduction for fully embracing and meeting responsibilities under this procedure by, for example, supplying information promptly, including full written disclosure, attending meetings and answering questions
In most cases, therefore, the maximum reduction obtainable will be 80 per cent of the penalty. In exceptional circumstances however, consideration can be given to a further reduction, for example, where you have made a full and unprompted voluntary disclosure.
Prosecutions
VAT prosecutions are carried out by the Revenue and Customs Prosecutions Office (RCPO).
The RCPO is responsible for prosecuting some of the UK's largest criminal cases involving drug smuggling, money laundering and tax fraud, and is independent of HM Revenue & Customs (HMRC).
Decisions on whether or not to charge someone are made by Revenue and Customs Prosecutors. These decisions are made following a review of the evidence to determine if there is a realistic prospect of conviction, and whether a prosecution would be in the public interest.
Prosecutions are tried in the criminal courts. Generally, prosecutions are only sought in the more serious or aggravated cases where civil sanctions will not work. A prosecution would be likely where someone:
- set up a bogus business specifically to cheat the VAT system
- deliberately deceived us during the course of a civil investigation
- combined fraud with another crime
The broad range of penalties that can be imposed on people convicted of VAT fraud includes:
- seizure of assets
- jail terms of up to seven years
- heavy fines
- disqualification from being a company director
