HMRC to target VAT rulebreakers

In a recent announcement HM Revenue and Customs (HMRC) have advised they are launching an initiative to target individuals and businesses who are trading above the VAT registration threshold but who have not yet registered for VAT.

They plan to identify organisations with annual turnover above or very close to the VAT registration threshold, which is currently £73,000, and will check to see if they have registered for VAT.

As part of this campaign businesses are being given the opportunity to make a voluntary disclosure to HMRC and minimise their VAT liability. HMRC have indicated that they will offer businesses that come forward voluntarily, by 30 September 2011, lower penalties for prompt action or in some cases no penalties at all. This amnesty will give unregistered companies the chance to get their business affairs in order.

Once the amnesty is finished HMRC intends to target the businesses it believes are trading over the threshold. Businesses that remain unregistered after the amnesty period will face a detailed investigation into their affairs and will be subject to substantial penalties and interest in addition to the tax due, if it is found that they are breaching the regulations.

HMRC encourages anyone who has unpaid tax to come forward and make a voluntary disclosure. A spokesman said: “It will always be less expensive if customers come to HMRC voluntarily rather than wait until we catch up with them”.

Previous HMRC campaigns have targeted individuals with undeclared offshore investments, medical professionals and the plumbing industry. It is reported that more than £500million has been raised by HMRC from voluntary disclosure campaigns and a further £100million from follow-up activity.

In addition to the VAT registration amnesty, HMRC have also announced further campaigns to be launched in 2011/12. These will focus on those who provide private tuition or coaching and trades, extending the plumbers’ amnesty. They will also target those who are using e-marketplaces, such as eBay, to buy and sell goods as a trade or business without declaring the income to HMRC. Occasional sellers are unlikely to be liable to tax and should not be targeted by this campaign. Summary information on existing and future initiatives will be available on the HMRC website. Anybody who has been targeted by a previous campaign will be unable to use a subsequent amnesty to disclose liabilities.  

HMRC confirmed they will be using use ‘cutting-edge tools’ such as ‘web robot’ software to search the internet and find information about certain people and organisations. Using this software, they can identify those who have failed to pay the correct amount of tax. The ‘web robot’, used with HMRC’s computer system, also helps to find those who are trading without being correctly registered.

The system alerts HMRC to potential tax evasion by matching a large amount of HMRC and third-party data and can uncover anomalies relating to items such as bank interest and property income.

Any individual or business who may be affected by these campaigns may wish to take early action. Our tax department can provide support in all aspects of tax compliance and planning and we also offer competitive fee protection insurance to clients. If you require further information please telephone Mairi Drummond on 01573 224391 or email