VAEC1220 - Powers of assessment: VAT assessment powers: Delay in handling fraud cases

When assessing for tax in fraud cases, as the assessing officer you need to take extra care to ensure they are within assessing time limits. If eventually it is decided not to pursue fraud, the assessment must not extend beyond a maximum of four years.

The same is equally true in cases involving deliberate behaviour. This is where as assessing officer you are considering charging penalties under FA 2007, Schedule 24 for Inaccuracy Penalties in a document. If you do not have sufficient evidence of deliberate behaviour, your assessment will be confined to the four year period.

Such investigations are often lengthy, and have multi-officer involvement, it therefore follows that periods might easily be lost if you delay in making an assessment. This might happen, for example, if cases referred for deliberate behaviour or fraud action have been returned and not pursued.

We recommend that robust management controls are put in place for such cases. This will

• assist you in complying with the one-year evidence of facts rule when notifying assessed amounts, giving you sufficient time to ascertain the amounts assessed and to carry out further investigations into dishonest or deliberate behaviour, and
• ensure all of the information which is material to raising an assessment, is communicated to you as assessing officer promptly.

Having these robust management controls in place will help you to identify when the one-year ‘clock’ started ticking and monitor the relevant deadline to avoid assessments going out of time.

If evidence of both the amounts assessed and dishonesty comes to your knowledge within one year, you can assess for the tax up to 20 years.

If, on the other hand, you have only obtained evidence of amounts assessed and you are approaching the one year evidence of facts time limit, see VAEC1300, but you have not yet secured sufficient evidence to demonstrate dishonesty or deliberate behaviour; you should assess to best judgement, see VAEC1400, for those periods up to four years old.

If you fail to assess the earlier periods and you later find out you are unable to find evidence of dishonesty or deliberate behaviour you risk earlier periods being out of time to assess periods under the four year rule.

If evidence of dishonesty or deliberate behaviour is subsequently obtained, you will have one year from then to assess back 20 years for those periods which are over four years old.

Tax assessments should not normally be delayed pending the outcome of a criminal prosecution. However, should a decision be taken, supported by legal advice, to defer assessing a criminal case, resulting in periods falling out of time for assessment, the loss of revenue must be accounted for.

Such deferment should be exceptional and justified as normally assessments should be made without prejudice on a factual basis consistent with the prosecution, even if your legal advice is that recovery of the assessment should not occur until conclusion of the prosecution for VAT fraud.