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Another Excellent Success for LNL in Tax Fraud Prosecution

HMRCWe acted for an individual who faced a complex and long-running tax fraud investigation and prosecution. The issue focused on whether or not our client was an employee or a trustee of a company. The Company itself had been the subject of an HMRC investigation, and we discovered when preparing the case that the Company had been less than truthful with HMRC about important facts. We were able to renegotiate the amount that was due to HMRC and our client pleaded guilty to a lesser case as a result. He received a suspended sentence of imprisonment, even though the relevant Sentencing Guidelines indicated a starting point of an immediate custodial sentence.

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EU Targets VAT Fraud

The Council of Europe took the latest step in its fight against VAT fraud earlier this month when it adopted two new directives designed to tackle the problem.

The first will help national authorities respond rapidly to sudden and massive instances of VAT fraud, while the other targets ‘carousel fraud’ directly.

A European problem

Tax fraud and tax evasion has become a priority for EU leaders, largely because of a growing awareness that the European tax gap is huge - amounting to €1 trillion, according to MEPs.

The tax gap covers not only the tax that is lost to member states because of tax fraud and tax evasion, but also because of tax avoidance schemes or differences between the tax systems of member states.

The issue came to prominence in a high profile meeting of the European Council of Ministers in May this year, when EU leaders agreed that they had to work together in order to tackle tax fraud and tax evasion. They highlighted VAT fraud as an area that could be tackled quickly, given that two directives on the issue were already in the pipeline.

Why is change needed to the VAT system?

According to the Council of Ministers, weaknesses in the EU’s VAT system leave member states particularly vulnerable to VAT fraud, especially when cross-border transactions are involved. This can often have serious consequences for national exchequers.

On top of this, fraud schemes can evolve quickly, giving rise to situations that require a swift response. This is particularly so with ‘carousel fraud’, where supplies are rapidly traded several times without payment of VAT.

Carousel fraud

The amount of money involved in a carousel fraud case can be huge. One 2008 case, relating to the import of mobile phones and computer processing units, involved a conspiracy to steal £38 million.

On that occasion, the goods were imported into the UK, mainly from Dubai via Europe. Then they were sold on through a series of companies, but with VAT added. Once the goods had been sold on a number of times they were exported back to the EU. The exporter would then claim a VAT credit from HMRC for the VAT paid on the purchase of the goods – although this was never paid in the first place.

Changes to current system

Until now, it has been hard to tackle such situations at the EU level. It requires either an amendment to the 2006 VAT directive or the granting of an individual derogation to member states under that directive.

Both require a proposal from the European and a unanimous decision by the Council - a process that can take several months.

The two new directives are designed to speed up the process. They amend the VAT directive in order to:

  • Allow member states to apply, on an optional and temporary basis, a reversal of liability for the payment of VAT (‘reverse charge mechanism’) in particular situations, with the aim of closing off certain types of known fraud - notably carousel schemes. This shifts liability for paying VAT to the customers rather than the suppliers involved.
  • Create a ‘quick reaction mechanism’ - an accelerated procedure that will enable member states to apply the ‘reverse charge’ to specific supplies of goods and services for a short period of time, by derogation from the provisions of the VAT directive.

Both directives will apply until 31st December 2018. They may then be renewed, but this will require a proposal from the Commission and the unanimous approval of the Council.

If you have been questioned or contacted by HMRC in connection with alleged VAT irregularities and require specialist legal advice, contact our expert solicitors Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.

This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.

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Despite the Hype, it Seems HMRC are not Meeting their Prosecution Targets After All

According to Accountancy Web, the latest HMIC report concludes, despite the recent barrage of publicity about five times increases of tax fraud prosecutions, that HMRC are missing their prosecution targets.

Figures show:


Year Target Number Actual Number
2011/12 365 302
2012/13 565 349
2013/14 76  
2014/15 1,165  


A further analysis of figures between April and September 2012 reveals only 202 prosecutions. Those prosecutions can be further analysed as follows:


Prosecution Type Number of Individuals Prosecuted
Alcohol 12
Direct Tax 24
Money Laundering 3
Oil  2
Other 3
Stamp Duty 1
Tobacco 76
VAT 65
VAT Securities 16
Total 200


HMRC have been given additional funding by the Treasury to increase the number of prosecutions. They have 200 volume crime investigators and 40 intelligence officers working in this area alone.

The reason why the number of prosecutions is so low is unclear, though the HMIC believe that that HRMC and the CPS are focusing too much on fulfilling their disclosure obligations! Disclosure is a fundamental part of the prosecution process, so it’s surprising that HMIC would suggest this.

If you are facing an investigation by HMRC contact Jeffrey Lewis or Siobhain Egan who have many years of success when defending these investigations/proceedings.

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Offshore Trusts: Next On HMRC's Hit List

Those who do not inform HMRC of offshore trusts to which they are party, could face a financial penalty of 200% of the tax due. A criminal prosecution for tax evasion, money laundering or fraud is likely to follow, especially as HMRC has a renewed appetite for such prosecutions.

Traditionally these trusts (many of which set up in the 80s and 90s) were done so in order to protect assets, but HMRC have long suspected that these trusts are essentially devices to facilitate evasion and other criminal activities.

Many people claiming non-domiciled status and holding valuable properties in offshore trusts or companies, ought to take advice and check that they still fall within the recently amended tax rules (see Budget 2013).

Jeffrey Lewis has just been instructed by an individual facing such a criminal investigation; contact him if you have a similar issue.

We have been successfully advising clients with contentious tax issues (both civil and criminal) for many years.

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New Prosecution in Alleged Film Tax Partnership Fraud

The Financial Times reports (30/04/2013) that five individuals face charges at Birmingham Magistrates Court next month. It is alleged that they falsely claimed the value of allowable losses and defrauded investors through false accounting documents.

This is yet another example of the vortex that both investment advisors and investors currently find themselves, as a result of renewed focus on criminal prosecutions by HMRC and CPS. They have promised to increase prosecutions to 1,500 per annum by 2014.

Film tax partnerships have always been complicated, delicate investment arrangements. Each one is arranged differently and they have attracted the interest of HMRC since 2002.

They have not followed a consistent approach to these types of partnership arrangements, sanctioning some immediately and then changing their minds at a later date. Each year investors would face a yearly HMRC inquiry.

Even now, not every tax partnership has fallen either at the first hurdle or at tribunal level.

We are currently advising individuals facing a variety of investigations by HRMC, including criminal investigations.

We are one of the few firms that can offer a multi disciplinary approach to these issues. We have teams of both serious fraud defence and tax experts, all highly rated in: Chambers UK; Legal 500 and Superlawyers UK.

We have over thirty years experience of successfully defending serious fraud and tax fraud investigations/prosecutions.

Our highly skilled, experienced approach is pro-active, robust and rigorous and it produces consistently excellent results. Please see our news and cases sections on the website for some examples of our recent instructions and results, and our tax and serious fraud departmental sections which gives a full flavour of the services that we offer.

If you need advice on any if the issues raised in this piece: please contact JEFFREY LEWIS; SIOBHAIN EGAN; MILES HERMAN; KEITH WOOD.

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