What are the VAT fraud sentencing guidelines (2024)?

Are you under investigation for VAT fraud? You will be under extreme stress, particularly worrying what the worst case scenario may be.

At Holborn Adams, our tax fraud solicitors are here to ensure you fully understand the ins and outs of VAT fraud investigations, including the sentencing guidelines.

 

What is classed as VAT fraud?

VAT fraud covers a wide range of activities, including but not limited to:

• Avoiding paying VAT on goods/services by asking customers to pay in cash.
• Requesting that customers pay a third-party rather than your business directly to avoid declaring the income and paying VAT on it.
• Not registering for VAT if your business turns over £90,000 per year.
• Claiming to have applied for a VAT number.
• Using a VAT number that belongs to someone else or is fake.

 

What is the penalty for VAT fraud?

For transactions which took place after the 16th November 2017, you face a fine up to £20,000 and/or a prison sentence of up to 7 years. This prison sentence will increase to 14 years in the near future.

You may receive other penalties such as:

• Naming and shaming – your details may be published for the general public to see that you’ve committed tax fraud.
• Restrictions on finances/assets – You may receive a confiscation order or restraint order, which allows authorities to confiscate or freeze your assets.
• Restrictions on activity – You may be prevented from working in a similar role again e.g. disqualification from working as a company director. You may be given a financial reporting order meaning you need to report your financial activity to authorities.
• Pay costs incurred by prosecutors – You may have to compensate the prosecutors for the money spent to create their case against you.
• Surcharges for victims – You may have to compensate the victims involved in the case.

How is the sentence for VAT fraud determined?

Sentences for VAT fraud are based on your “culpability” (how much you are to blame) and the “harm” caused (how much money you defrauded). Prosecutors also take into account aggravating and mitigating factors.

 

Culpability

Culpability looks at your role in the VAT fraud. HMRC determines how involved you were i.e. were you the instigator, or were you coerced. Culpability is categorised as follows:

 

Category	Culpability Level	Description
A	High	Leading role, pressuring/influencing others to join in, abuse of position of power/trust, sophisticated planning, over a sustained period of time, many victims, targeting vulnerable victims.
B	Medium	Significant role, role falls somewhere between category A and C.
C	Lesser	Involved through coercion/intimidation/exploitation, not involved for personal gain, peripheral role, little or no planning, limited understanding/awareness of the extent of the fraudulent activity.

 

Category A is deemed more serious so is penalised more harshly. Category C is still punishable, but not as severely.

 

Harm

Harm looks at the loss of money involved in the fraud – this can be the actual, intended or risked loss. The amount of “actual” and “intended” loss is categorised by severity in the table below.

The amount of actual/intended money lost is associated with a category, and in this category, there is a “starting point” benchmark figure which allows the prosecutors to determine how serious a penalty to give. For example, £40 million lands in Category 2, but because the benchmark figure is lower at £30 million, this guides the prosecutor to a more serious penalty.

 

Category	Money involved	Benchmark figure to base penalty off
1	£50 million +	£80 million
2	£10 million – £50 million	£30 million
3	£2 million – £10 million	£5 million
4	£500,000 – £2 million	£1 million
5	£100,000 – £500,000	£300,000
6	£20,000 – £100,000	£50,000
7	Less than £20,000	£12,500

 

Aggravating factors

In addition to culpability and harm, prosecutors consider aggravating factors that would worsen the penalty they give. These factors include but aren’t limited to:

• You have previous convictions.
• You committed an offence whilst on bail / on licence / during post sentence supervision.
• You engaged in multiple frauds.
• You went to lengths to conceal/dispose of evidence.
• You tried to blame others.
• You’ve made a number of false declarations.

 

Mitigating factors

Similarly, prosecutors will take into account mitigating factors (factors that reduce the seriousness of the offence, warranting a less severe penalty). This includes but isn’t restricted to:

• You haven’t had any previous offences or relevant convictions.
• You show great remorse.
• You are seen to have a good character and exemplary conduct.
• You have a serious medical condition (requiring long-term/urgent/intensive treatment).
• You are considered young (18-25) and lacking in maturity.
• You have a learning disability or mental disorder.
• You are the sole/primary carer for dependent relatives.
• You have been cooperative with the investigation.
• You have demonstrated steps to address the impact of your offending behaviour.

How to get no or reduced penalties for your VAT fraud offence

Defending VAT fraud cases is no easy task. There is usually overwhelming evidence working against you. That’s why it’s critical to instruct a solicitor who specialises in tax fraud. They have the expertise and experience of working on VAT fraud cases so know the best ways to secure you reduced penalties almost instinctively.

The team here at Holborn Adams has an impressive track record of securing no or significantly reduced penalties for clients facing VAT fraud charges. We often work together with tax experts to create an airtight defence for you, and will liaise with HMRC on your behalf to come to the best possible case conclusion.

It’s important to move quickly with VAT fraud cases – please get in touch with our tax fraud solicitors today.

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