VAT fraud

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• Case studies
• FWJ takeaway

A VAT fraud investigation can be disruptive and potentially costly for any business. HMRC may challenge VAT returns where it believes that errors, irregularities or deliberate behaviour have resulted in underpaid VAT or overclaimed input tax. Responding clearly and accurately is essential to protect your business and minimise financial exposure.

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At a glance

HMRC investigates suspected VAT fraud where it identifies irregular returns, missing trader risks or concerns about inaccurate records. Investigations may lead to repayment demands, penalties or, in serious cases, consideration of criminal action. We help businesses respond to enquiries, prepare evidence and challenge HMRC’s findings where appropriate.

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What is VAT fraud and how does HMRC define it?

VAT fraud refers to conduct that leads to underpaid VAT or overclaimed input tax. It includes both deliberate wrongdoing and repeated or significant errors that HMRC considers careless. Examples include suppressing sales, inflating input VAT or submitting inaccurate records.

VAT fraud can be investigated on a civil or criminal basis. Most investigations are civil. Criminal investigation is reserved for the most serious cases where HMRC believes there has been intentional evasion supported by evidence.

Summary: VAT fraud includes any conduct that leads to incorrect VAT returns, whether deliberate or caused by poor record keeping.

Why has HMRC opened a VAT fraud investigation into my business?

HMRC opens investigations for several reasons. Common triggers include:

• unusual or inconsistent VAT repayment claims
• discrepancies between VAT returns and accounts
• concerns about the accuracy of records
• missing invoices or incomplete audit trails
• high risk supply chains or unexplained transactions
• links to sectors where VAT fraud is more common

HMRC may also investigate where it believes the business has not carried out proper due diligence on suppliers or customers.

Summary: Enquiries are usually triggered by irregular returns, missing records or concerns about supplier or customer behaviour.

How does HMRC investigate suspected VAT fraud?

HMRC conducts investigations through compliance checks, information notices and detailed reviews of records. This may involve:

• reviewing VAT returns and supporting documents
• requesting bank statements, contracts or invoices
• seeking explanations for discrepancies
• visiting business premises to inspect records
• interviewing key personnel

If HMRC suspects deliberate behaviour, the matter may be escalated to a civil fraud investigation under COP9. Only a small number of cases progress to criminal investigation.

Summary: HMRC uses information notices, record reviews and enquiries to investigate potential VAT irregularities.

What evidence does HMRC look for in a VAT fraud investigation?

HMRC will expect clear and accurate records. Common evidence includes:

• sales and purchase invoices
• VAT account and ledgers
• bank statements
• contracts and delivery notes
• due diligence records on suppliers and customers
• explanations for unusual transactions

Where evidence is missing or incomplete, HMRC may draw adverse conclusions. Ensuring that documents are well organised and supported by clear explanations is essential.

Summary: HMRC expects complete and accurate records supported by proper due diligence.

What are the consequences of VAT fraud for a business?

If HMRC concludes that VAT has been underpaid, it may issue an assessment requiring repayment. Interest will usually be charged. Penalties may also apply, depending on HMRC’s assessment of behaviour.

Where HMRC believes the conduct was deliberate, penalties may be higher and HMRC may consider additional enforcement action. In serious cases, HMRC may restrict VAT repayment claims or amend future reporting requirements.

Summary: Consequences include repayment demands, interest and penalties based on the nature of the inaccuracy.

Can directors be personally liable for VAT irregularities?

Directors may be personally liable where HMRC believes they were responsible for deliberate or negligent conduct. This may include issuing incorrect invoices, failing to keep proper records or failing to carry out due diligence.

In rare cases, HMRC may consider issuing personal liability notices or pursuing action against directors under separate legislation. This usually arises only where there is evidence of serious misconduct.

Summary: Personal liability may arise where HMRC believes a director was responsible for deliberate or negligent conduct.

Can VAT fraud lead to criminal investigation or prosecution?

Most VAT fraud investigations are civil. HMRC only considers criminal investigation where it believes there has been intentional evasion supported by strong evidence. Criminal cases are rare and usually involve significant sums, organised fraud or deliberate attempts to mislead HMRC.

Investigations begin on a civil basis. Only where HMRC identifies evidence of intentional wrongdoing will it consider changing the approach.

Summary: Criminal prosecution is rare and reserved for cases involving clear and serious evidence of evasion.

How should you respond to a VAT fraud enquiry letter from HMRC?

The first step is to review the VAT records and identify any issues that may have caused the enquiry. You should gather supporting evidence, prepare explanations for any discrepancies and ensure that your responses are accurate and complete.

It is important not to respond hastily. Incomplete or unclear explanations can lead to further questions or adverse conclusions. A structured and well prepared response helps demonstrate cooperation and credibility.

Summary: A clear and well evidenced response is essential to address HMRC’s concerns.

Can you challenge HMRC’s findings in a VAT fraud case?

You can challenge HMRC’s conclusions through an internal review or appeal to the First tier Tribunal. Appeals may be appropriate where HMRC has misunderstood the transactions, misapplied the rules or overlooked key evidence.

Appeals must be supported by strong documentation and clear reasoning. In some cases, negotiation or settlement may be a better option. Early advice helps clarify the most appropriate route.

Summary: HMRC’s decisions can be challenged through review or appeal, supported by strong evidence.

How does FWJ help businesses facing a VAT fraud investigation?

We assist businesses at every stage of the VAT fraud investigation process. We review VAT records, prepare detailed responses to HMRC’s enquiries and advise on the evidence required to support the business. Where necessary, we help challenge HMRC’s findings or negotiate a settlement that protects the company’s financial position.

Summary: FWJ provides clear and practical support to help businesses manage VAT fraud investigations and reach fair outcomes.

Our expert VAT fraud investigation defence team

No other firm in England has such a blend of skill and expertise as our tax team.

• Andy Lynch. Andy is an expert on a wide range of HMRC claims and before joining FWJ, he spent 18 years at HM Customs & Excise in their National Investigation Service. His experience is unrivalled in all types of HMRC claims including HMRC investigation defence, VAT claims, R&D tax credit defence, Account Freezing Orders, Tax Disclosure, Code of Practice 8 & 9 claims, winding up petition defence and much more.
• Stephen Downie. Stephen is a Partner and a former ACCA accountant who combines financial expertise with deep legal knowledge to deliver clear, commercial advice. He acts for directors, shareholders, insolvency practitioners and private clients in corporate governance disputes, director disqualification defence, and HMRC-related claims including tax avoidance schemes, PLNs, VAT and PAYE security demands. His focus is always on achieving the best outcome for clients as efficiently and cost-effectively as possible.
• Anita Sharma. Anita is a Senior Associate specialising in tax litigation and financial disputes with HMRC. She advises high-net-worth individuals and major commercial clients on appeals against HMRC decisions, complex tax assessments, and enforcement proceedings. Anita has secured interim relief following HMRC revocations to keep clients trading during appeals and is known for achieving practical, results-focused outcomes in high-value disputes.
• Khaliq Martin. Khaliq is a Senior Paralegal in the tax disputes team assisting on a broad range of HMRC investigation and defence matters. Khaliq draws on his international litigation background and public sector experience to help prepare detailed evidence and submissions for use in appeals and settlement negotiations, ensuring cases are presented clearly, carefully and effectively..

Fantastic firm, nothing was to much trouble. Direct to the point, so helpful would recommend to anyone, I would definitely use them again.

A client that we defended from an HMRC claim

Andy Lynch at FWJ was literally a life saver for me. I ran in to some tax issues with HMRC and I suffer from mental health issues as well so I was a complex case. Andy took his time to professionally and accurately layout my case and assist me with finding a resolution. I researched a lot of tax advisers before making my decision and I am glad I did and relieved that I chose Andy and FWJ.

Chris Kitchen