HMRC have a variety of sanctions they can impose to counter MTIC fraud. These include:
- Issuing means of knowledge VAT assessments.
- Issuing VAT assessments disallowing input tax deduction where HMRC allege information contained in the invoice is incorrect.
- Withholding repayment of VAT refunds for substantial periods of time based on an excuse that the claims are subject to extended verification.
- Issuing joint and several liability VAT assessments.
- Imposing joint and several liability excise duty assessments and seizing goods and vehicles from businesses dealing in excise goods.
- Imposing financial securities and penalties.
- Criminal prosecutions.
HMRC will and do use these sanctions against businesses and individuals. If you deal in goods and are in supply chains where tax losses arise then you are at risk.
Real life examples
- Attached here is a VAT assessment issued to a business to disallow input tax recovery of £4,682,002.00 from various suppliers who HMRC alleged were missing traders. This assessment is based on HMRC’s Input Tax Statement of Practice where HMRC state they will assess to disallow input tax if you hold an invalid invoice. They say an invoice is invalid if “some or all of the details do not relate to the person/business that made the supply (i.e. if the supplier is using a hijacked registration) or the details shown are those of a company that has gone into liquidation or is missing at the time the supply is made.”
- Assessments disallowing input tax recovery in the grounds that you had knowledge or means of knowledge are based on a complex interpretation of European case law. HMRC’s have not issued any Notices stating what their policy is in relation to issuing these types of assessments and trading in almost any goods places you at risk of receiving these assessments. The first notice that this measure has been applied to you is an assessment letter containing a complex legal and factual explanation. Here is such an assessment disallowing a VAT repayment claim for £6,579,106.64.
- Joint and several liability VAT assessments are a risk for businesses dealing in specified goods, for example mobile telephones and computers. If you deal in excise goods then you are also at risk of receiving joint and several liability excise duty and VAT assessments. The example here is a joint and several excise duty assessment issued because HMRC alleged there were irregularities in the movement of duty suspended alcohol. The same assessments were issued on the owner of the goods, transport company and excise warehouse.
- Many businesses dealing in excise goods purchase goods on the open market. They do not pay the duty and the price they pay for the goods is the open market value including duty. If HMRC believe duty was not paid on the goods then again they can issue excise duty assessments. Here is an example of an excise duty assessment issued where HMRC alleged the supplier was using a hijacked VAT registration, the assumption being the duty on the goods had not therefore been paid. HMRC also seized some of the goods in this case.
- HMRC will always seize excise goods where they suspect the duty has not been paid. The goods are often seized from innocent businesses in the chain who purchased the goods on the open market at the market price assuming the excise duty had been paid.
- HMRC can also impose financial securities backed by the sanction of criminal prosecution, see here. If the security is not paid and you continue to trade then HMRC can prosecute and severe financial penalties can be imposed. In the case of limited companies the Directors can be prosecuted and personally fined.
Documented, effective and comprehensive due diligence is required to form a defence against these measures. If you require any further information about these sanctions or how due diligence can assist a defence then please contact us on 0844 651 6852 or by email and we will be happy to assist.
