HMRC has found “no evidence of fraud” in a case where 12,000 Chinese companies changed their addresses to a flat in Cardiff.
Flat owner Dylan Davies has received thousands of tax bills for the companies since November 2021, including letters from debt collection agencies.
But while Jim Harra, the permanent secretary at HMRC, told MPs on Thursday that it was an “odd” and “curious” incident, he said there has been “no fraud perpetrated on HMRC as a result of this and it’s not clear that it was an attempt to defraud us”.
Appearing before the Public Accounts Committee, Mr Harra said: “If this was an attempt at fraud, it would be very unusual for fraudsters to use an address that is not under their control because what actually happened in this case would happen, which is that the real occupier of the address starts to get correspondence and they contact the authorities.”
The businesses registered to Mr Davies’ flat are overseas businesses selling into the UK through online marketplaces such as Amazon or eBay.
A change in the law in 2021 means that the online marketplace is responsible for paying VAT for overseas businesses, and Mr Harra told MPs that all the VAT payments relating to the businesses had been accounted for.
Mr Davies’ case came to light after he complained to the BBC Wales consumer programme X-Ray after receiving letters addressed to 11,000 businesses. That number has since risen to 12,000.
Asked by Mr Davies’ MP Ben Lake why so many businesses would choose to register at a residential address, Mr Harra said: “That is a mystery. We are aware of a serviced office address that is a quite similar address to your constituent’s but it’s not the same address so that may not be the correct explanation.”
He added that it was not uncommon for thousands of overseas businesses to register at a single address, but this was usually a serviced office address used so online marketplaces could receive all the correspondence relating to the VAT they were required to pay.
Since investigating Mr Davies’ case, Mr Harra said HMRC had introduced new checks to make sure large numbers of businesses were not registering at residential addresses in order to limit the risk of “inconvenience and distress to people”.
He said: “We have since April last year seen several waves of what we believe to be fraudulent attacks on the VAT system starting with unusual applications to register for VAT and we have strengthened our checks there and I do actually get correspondence from Members of Parliament because of the delays that some of those checks then impose on people who do need rapidly to get a registration.”
He told the committee that, since 2016, 120,000 VAT applications had either been refused or forced to be withdrawn and 10,000 businesses had been removed from the VAT register due to concerns about fraud.
Speaking after the committee meeting, Mr Lake said he was “disappointed” he had still not received a “satisfactory explanation” for what happened.
He said: “It is particularly worrying that my constituent has continued to receive letters from HMRC, despite assurances that action had been taken to prevent this from happening.
“I hope further investigations will succeed in establishing the precise reason why so many businesses registered my constituent’s property as their address.
“I cannot begin to imagine how distressing it must be to receive thousands of letters from HMRC, and so I am pleased that Mr Harra apologised for HMRC’s handling of the matter.
“Nevertheless, it remains the case that we do not know how or why this situation has arisen. Until we have a better understanding of the situation, I remain concerned that we cannot discount the possibility that it is the result of some malign or indeed fraudulent intent on the part of a great number of overseas businesses.
“It is now of utmost importance that the HMRC continues its investigations so that we can confidently rule out possible fraud, and identify the measures required to prevent a repeat of such ordeals in the future.”