This post illustrates how fraudsters avoid paying tax on invoice services they provide. Tax avoidance is legitimate but tax evasion is not. Single invoice finance such as that provided by Cash for Invoices Limited, is a taxable service - both for VAT and for corporation tax.
New Zealand employs many people (harvesters) to harvest food for farmers. These people are preyed upon by tax scammers - often from Asian countries such as India and Pakistan.
The scammers set up companies using false identities, and issue invoices to farmers for work completed by the harvesters. When the scammers receive payment from farmers, they pass on the money less a fee for their service, to the harvester.
The trouble is, no tax is paid by the scammers and hence they are breaking the law.
In one case, a 25-year old horticultural student from India, set up bogus companies and evaded payment of tax despite earnings of almost $900,000. He has been captured and pleaded guilty to 97 charges of tax evasion, according to the New Zealand Herald.
In the New Zealand cases, the scammers are not declaring and not paying $millions of tax.
"bogus companies, false identities and false invoices [have] fleeced the tax payers of New Zealand of tens of millions of dollars." said the Bay of Plenty Times
Single invoice financing
Single invoice finance provided by Cash for Invoices Limited is a taxable service, meaning the company provides a service (the purchase of an invoice for a fee off a selling company) and so tax is payable to HMRC for the fees it earns from that service.
In the UK VAT of 20% is charged by the single invoice finance company, such as Cash for Invoices Limited, to the seller and passed on by Cash for Invoices Limited to HMRC periodically,. Cash for Invoices Limited will subsequently also pay corporation tax on any net profit it makes from its single invoice finance purchasing service..
Tax avoidance is legitimate but tax evasion, illustrated by the bogus invoice companies in the farming industry in New Zealand, is definitely not.