Higher VAT rate driving spike in false claims

Ben Southwood
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A SHARP jump in delayed VAT refunds – effectively cash freezes – is down to extra fraud driven by the higher rate, law firm Pinsent Masons claimed this morning.

Five-hundred and eighty four VAT refund claims were delayed in 2012, Pinsent Masons figures showed, up from 405 in 2011 – a jump of 44.2 per cent.

The law firm said this extra cash freezing activity from HMRC was driven by extra fraud, itself in response to the VAT rate hike from 17.5 per cent to 20 per cent – which raises the profitability of avoiding the levy.

“HMRC has responded to the threat of increased VAT fraud by withholding more refunds for longer periods to check whether the claim is fraudulent,” said Jason Collins, head of tax at Pinsent Masons. “The danger is that many legitimate companies will be caught up in this crackdown. VAT refunds can be quite sizeable, so delays can hit a business’ bottom line.”­­