For those people who have in recent years traded in wholesale mobile telephones and other high value goods there may be about to be an alarming new development as Solicitor Stephen Chinnery explains.
Anyone that has been involved in these industries will know that the tax authorities have viewed these whole industries as plagued with VAT carousel fraud.
This is a type of fraud that has received a great amount publicity in recent times and for good reason.
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It has been described as the most serious threat to the UK's tax system and was said to have cost the country in excess of £3 billion per year last year.
The fraud can work by organised criminals being able to manipulate the differences in the rate of VAT payable between goods supplied in the UK as opposed to the VAT rate payable when the goods are sold or purchased from other EU countries.
The tax authorities have used two strategies to deal with this sustained assault on the tax system.
They have used criminal investigations and prosecutions in an effort to disrupt and deter organised tax evasion.
Prison sentences have increased markedly over a very short period of time as judges have become less tolerant to this type of offence.
The authorities have also used access to finance as a very powerful tool. Delayed input tax repayment claims and the systematic closure of banking facilities has decimated trade volumes and driven many traders into insolvency.
Game set and match you might think? That is not the way the tax man sees it.
There is a suspicion that in future certain people will be back under a different guise and trading different products with the same huge VAT losses to the UK.
There is also a strong impulse to take the profits out of crime.
This is where the tax man's relationship with The Serious Organised Crime Agency (SOCA) becomes significant.
The Proceeds of Crime Act 2002 created a first in English legal history. It gave powers to the State to sue people in the civil courts to take from them money believed to be obtained through crimes.
The significance of this cannot be over stated. There is no jury deciding these cases as you would find in a criminal court.
The standard of evidence required for the state to win their case is much lower than they would need in a criminal court.
Rules concerning hearsay evidence are much less stringent in the civil courts; and, the system is designed so that you will have difficulties in paying for a proper legal defence.
One of the most significant aspects of this is that the State can follow money and property into the hands of third parties. This means that close family members and friends are at risk of having their lives turned up side down and inside out.
They will only be allowed to keep their property if they can show that (a) it was not property arising from crime, or, if it was, (b) that it was innocently acquired for it's full market value.
This procedure is the third strategy that the tax man will begin to use. More and more the tax man will refer cases to SOCA to use these civil recovery powers.
In fact a recent report produced as part of a review of these powers noted that just one case involving a computer chip trader accounted for half of all the money collected under these procedures over the past 4 years.
So what has changed and why have these powers not been used more frequently up to now? Firstly, the focus has been until now putting people out of business and shutting down industries rather than collecting in ill-gotten gains.
That is about to change. Secondly, there is a perception that a significant amount of money has been obtained illegally and squirreled away to be held by friends and relatives.
Thirdly, the State is under media pressure to show that these procedures are self financing. What is needed therefore is a cash cow. Fourthly, there seems to be a growing consensus amongst judges that anybody involved in certain industries must know that they are part of a widespread fraud particularly given the publicity carousel fraud has attracted in recent years. Lastly, it is an open secret that the tax man has been building files on many people involved in these industries in the last 2 years particularly as claims for input tax are made.
The effect of all this is that there will be many innocent victims who will be subject to 3 or 4 years legal proceedings. They stand to lose everything they own.
Article by Stephen Chinnery of Salford based Chinnery & Co Solicitors
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