Customs plans VAT evasion shake-up

The new procedures – to be trialed in three Customs regions – will replace formal investigations with an invitation to traders to themselves disclose the full extent of their unpaid VAT in return for a reduced penalty worth only 20% of the arrears.

The new system is expected to allow accountants to advise their client with more certainty about what might occur if they declare unpaid VAT.

At the same time the £75,000 criminal prosecution threshold – the level over which VAT evaders can expect to be prosecuted through the criminal courts – is to be removed allowing greater flexibility for officers when deciding whether criminal or civil procdures are required.

Tony Walker, head of Customs’ VAT anti-fraud strategy team, said: ‘The changes are aimed at both accountants and traders but in the early days we would expect there to be a positive reaction from the accountancy profession. So far reaction is uniformly positive.’

At the moment a trader suspected of VAT evasion is called in for tape-recorded questioning, much as the police carry out under the Police and Criminal Evidence Act.

Almost all evasions exceeding £75,000 are treated under criminal procudures while those below are dealt with using civil processes.

In the experiment – which will last for 12 months from 1 September – the threshold will be removed. Traders will then be notified that they are susepcted of evasion and invited to disclose the full extend of the arrears. If a final figure is agreed between the trader and Customs officers, there is no investigation and a penalty equal to 20% of the arrears is imposed.

Under the old system the lowest penalty possible is 25% of the arrears but could be as high as 100% – effectively doubling the VAT bill.

Customs indicates it also expects to be more flexible with the payment terms for arrears and penalties.

Walker said new procedures, which mirror the Inland Revenue’s Hansard methods, will be trialed in the East Midlands, North West England and London and would also hopefully remove the ‘adversarial’ nature of VAT investigations .

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