How does VAT work?

LurkerTurnedPoster

Thank you Pennywise. It is interesting that things have changed and worsened over time.

Is it true that lots of the older more experienced tax persons left or were given redundancy and less experienced ones replaced them with "revenue generation" targets, like you get in outward bound sales jobs?

thenudeone

LurkerTurnedPoster wrote: »

So VAT carousel fraud?

If goods are sold and transferred out of the UK then generally no VAT is charged. That may leave the exporting business with a huge VAT reclaim from HMRC, because they have been charged VAT by their supplier but don't charge VAT when they sell it.

Clearly, with the right fraudulent records, this is an area where criminals can make a lot of money dishonestly without any of that tedious mucking about with sawn-off shotguns and so on.

John_Pierpoint

Has the merger between the Inland Revenue and H.M. Customs & Excise created a change in the culture?
Somehow I had this feeling that "Customs" (responsible for VAT) had a more "wham bam" attitude to enforcement as against the "IR" attitude of "softly softly cachee monkey" ?

JasonLVC

LurkerTurnedPoster wrote: »

Thank you, that was brilliantly explained.
So VAT carousel fraud?

You make up some invoices and send them in and claim the made up number?

I cannot work out how someone can claim VAT they have not paid.

Carousel fraud is a little more sophisticated than just raising fake invoices and claiming VAT. More on that later......

Many fraudsters try it on, create false invoices on their computer, either making up a VAT number or using one from another firm such as Argos and then reclaiming it and for small values they'll get away with it until they get a VAT inspection and/or VAT return verification check - at this point the false invoices will jump out and the VAT has to be paid back and potential penalties of upto 100% on top of the VAT claimed originally.

In carousel fraud cases, the company that issues invoices are real companies with real VAT numbers. The scam involves exploiting the rules surrounding trade between EU companies - which are basically VAT free transactions.

UK buyer/company 'buys' phones from UK supplier. UK buyer reclaims the VAT charged to them by the UK supplier. UK buyer then 'exports' the phones to France. As a movement of goods betwen two EU businesses it is VAT free. So UK buyer gets to reclaim all the VAT charged to it but has no VAT to pay over to HMRC. French supplier then "sells" phones back to another UK buyer (with no VAT). This 2nd UK buyer then sells phones to a UK buyer plus VAT and that UK buyer then exports back to France ad infinitum.

In money terms you'd see :-

UK supplier sells goods for £100 + £20 VAT
UK Buyer reclaims this £20 VAT
UK buyer then sells to France for £100 + £0 VAT

UK supplier never pays over the £20 it charged to UK buyer and which UK buyer reclaimed. HMRC is down £20. If goods come back from France and enter the chain again then each time you gain £20 at HMRC's expense.....obviously these scams are done using millions of pounds of VAT, not £20 a time.:D

That's why its called carousel fraud as the phones/goods go around in a circle. The 1st UK buyer after reclaiming VAT and selling the phone then closes down/does a runner before paying it over to HMRC.

More sophisticated versions include the phones don't even exist, the container shipped abroad just contains air or broken scrap.

Within a chain as described above there may be a legitimate buyer/seller to make the chain more legitimate. The legit phone trade may buy goods from a UK supplier and sell them to a UK buyer (the fraudsters will be both the supplier and buyer and the fraudster buyer will approach the legit trader asking if they can supply 5,000 iphones and same day the fraudster UK supplier calls our legit trader offering 5,000 iphones at a good deal so the legit trader gets sucked into the chain having being manipulated into it).