One of the fastest growing areas of tax evasion is VAT fraud. This involves individuals illegally avoiding or evading Value Added Tax (VAT), usually by not paying VAT owed, claiming VAT refunds or collecting VAT from customers but not submitting it. One area where tax evasion is growing is among small businesses, and a significant portion of this is related to VAT, especially by overseas sellers using online marketplaces.
While the responsibility for VAT fraud ultimately lies with HMRC there are some steps which you can take to reduce the risk to your business or deal appropriately with any consequences.
- When setting up a business – follow the correct process and set up a Government Gateway account before registering for VAT. This way the VAT number can be added to your records as soon as you have it.
- Know the rules – make sure you’re aware of VAT law in the UK and any countries you trade with.
- Perform due diligence – verify VAT numbers of any of your customers and suppliers, especially for cross-border transactions in the EU. Official databases such as the EU VIES system can help here. Beware of companies who change address frequently or refuse to issue proper invoices.
- Set up internal processes – consider invoice approval before processing payments or reclaiming VAT and always use accounting software with built-in VAT compliance checks.
- Be careful with VAT refunds – always keep good records and avoid claiming large VAT refunds without verification of supporting documents.
- Check for suspicious activity – look out for unusual patterns such as large refunds requested by a single supplier or frequent cancellations or returns linked to VAT claims.
- Keep good records – maintain digital records for easy audit tracking and regularly reconcile VAT returns with accounting records to catch irregularities early.
If you are setting up a small business, or want help or support in ensuring that your accounting processes are robust then please contact us. We specialise in helping SMEs across Hampshire and West Sussex, and would be delighted to discuss what we can do to support you.