Introduction – Tax issue and it’s importance
The tax issue involves the deliberate overclaiming of input tax using false invoices, which had been issued for supplies that were never made. This is significant because it addresses the integrity of the VAT system, ensuring that businesses accurately report and pay their taxes. Deliberate fraud undermines the tax system, leading to revenue loss for the government and unfair competition among businesses.
Problem in the Case
In this case, the problem was that HMRC assessed Lancer Scott Ltd for overclaiming input tax on its VAT returns between September 2006 and December 2009. The issue revolved around false invoices for supplies that were not made, with the company accused of participating in transactions connected to VAT fraud.
Taxpayer’s Argument
Lancer Scott Ltd argued that HMRC’s assessment was issued too late, suggesting that HMRC had sufficient evidence to raise the assessment before the critical jury bundle was received from a related criminal prosecution. They claimed that the evidence HMRC needed to make the assessment was already available to them during Mr. Folwell’s trial, who was convicted of money laundering and was connected to the company.
HMRC’s Argument
HMRC argued that the input tax claims were based on non-existent supplies and that the company knowingly engaged in transactions connected to VAT fraud. They presented comprehensive evidence showing that the invoices were false and that the taxpayer had participated in fraudulent activities. HMRC also contended that their assessment was timely because it was issued within one year of receiving sufficient evidence from the criminal prosecution’s jury bundle.
Outcome/Decision
The First-tier Tribunal (FTT) sided with HMRC, accepting their evidence that the appellant had deliberately overclaimed input tax using false invoices. The FTT found that the majority of the claimed items were not supplied and that the overclaims were intentional. Consequently, the appeal against both the assessment for overclaimed input tax and the associated penalties was dismissed.
Implications for Clients
For our clients, this case shows the importance of maintaining accurate and honest records for VAT purposes. It highlights the extended timeframe HMRC has to assess cases involving deliberate VAT fraud, which can be up to 20 years. Clients must ensure their transactions are legitimate and correctly documented to avoid harsh penalties and assessments. Additionally, the burden of proof lies with the taxpayer to demonstrate the correctness of their VAT claims, emphasising the need for thorough and transparent accounting practices.
Next Steps
At ETC Tax, we pride ourselves on our values, with excellence being at the forefront. We are dedicated to ensuring your records are both up-to-date and accurate, so you can avoid the stress of HMRC assessments. If you need further guidance on VAT, a complex area of tax, please get in touch with us today. Our team is here to help you navigate these challenges with confidence and expertise.
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