A Cardiff flat owner has received thousands of letters from HM Revenue and Customs (HMRC) in a matter of months after more than 11,000 overseas Chinese companies used his address to register for VAT. Dylan Davies, an estate agent from Ceredigion, said he had been bombarded with over 6,000 letters to his apartment - which he doesn't reside in all the time - since September last year.
Tax bosses have said they found "no evidence of any fraud" during the bizarre situation. "Back in September, I was there one day and opened the letterbox and all these brown envelopes fell out. I counted about 580 that one time," Mr Davies, 65, told WalesOnline. He said when he did not get a response from HMRC, he resorted to contacting Welsh BBC consumer show X-Ray, which ran the story.
"That woke up everybody then. All of a sudden I heard from HMRC," he said. "By that time [the end of 2022], I think I had about 3000 letters. Now I've had over 6,000 letters...I had a letter from HMRC in March that they would be looking into it. They apologised...they made sure that no more post would arrive at my address - but they're still arriving. I had 20 there last week."
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Included in some of the letters were demands from debt collection agencies. "[X-Ray] opened a small amount of those and the debt was over half a million...that was only a small portion of the letters I've had." Mr Davies admitted the ordeal had been a "very, very worrying time" before X-Ray had got involved.
"I was just knocking my head against the wall. I just wanted somebody to recognise I had this issue...just to show that I was innocent in all this. But I couldn't get any responses." He continued: "I was having visions of bailiffs coming and charging the door down one night and taking everything you've got in the house."
He was also worried about talk of the incident affecting his own business. "It was the worry of what word would get about - like whether I'm involved in VAT fraud...if I woke up in the middle of the night I wouldn't go back to sleep, because it just worries you."
Mr Davies claims that before the BBC show took on his story, his solicitor wrote to HMRC twice but did not get a response. Appearing before the House of Commons Public Accounts Committee on Thursday, HMRC CEO Jim Harra apologised for the delay in responding to Mr Davies' solicitor, explaining that the letter got delivered to an old HMRC address and took a while to get redirected, before it was then "mishandled" within the department.
By the time they dealt with it, Mr Davies had already gone to the media. Mr Harra said he was "grateful" for Mr Davies contacting the department, adding that he apologised "that we then didn't act promptly on that contact". Mr Harra described the incident as "very odd" and "very curious", but told the committee HMRC was confident that "there had been no fraud perpetrated on HMRC as a result of this and it's not clear that it was an attempt to defraud us."
He continued: "We have been seriously investigating it but as I say at this point we cannot find any indication of wholesale fraud as a result of it. Whether it was an unsophisticated attempt to do so which didn't work, it's difficult to tell."
He explained that the businesses were overseas firms that sell into the UK via an online marketplace, such as eBay or Amazon. In January 2021 a change in the law meant that online marketplaces were responsible for collecting VAT from foreign businesses and paying it to HMRC.
Mr Harra said HMRC was aware of the risk that an overseas business could pose as a UK business so the online marketplace would not account for the VAT - but extra checks that online marketplaces must carry out to determine where a business is established prevent this.
"Simply registering at a UK correspondence address does not pass those tests. So that in itself could not con an online marketplace into thinking that they are a UK business. And sure enough when we have looked into businesses on this long list we've found that for the vast majority of their sales via online marketplaces to UK customers, VAT has been accounted for by the online marketplace [since 2021]," said Mr Harra.
Out of the 11,000 businesses registered to Mr Davies' address, just over 2,356 of them owe HMRC a tax debt - and those debts pre-date the 2021 online marketplace rule, meaning the firm has primary responsibility for the payment. However, there is no requirement to provide proof of residence at a UK address when registering for VAT.
"Until we have resolved the addresses issue, we have no address with which to correspond with these 2,300 businesses," Mr Harra told the committee. According to HMRC, where an application for registration or a variation of a registration hits certain risking criteria, additional checks are undertaken, which can include requesting evidence to prove that the business is established at the address provided.
Mr Harra said that it "would be very unusual for fraudsters to use an address that is not under their control". Asked whether HMRC systems flagged instances where a large number of letters were being sent to a single address, he explained that it was "quite common" for a large number of foreign businesses to be registered at a single serviced office correspondence address in the UK, where their tax agent can collect the thousands of letters and deal with their client overseas.
Plaid Cymru MP for Ceredigion Ben Lake asked the tax boss why overseas businesses would "suddenly want to resgister their UK address as a flat in Wales". Mr Harra responded: "That is a mystery. We are aware of a serviced office address that is quite a similar address to your constituent's, but is not the same address, so that may not be the correct explanation."
Mr Lake added that he was "very concerned" about the systems HMRC have in place "if a residential address, a flat in Wales, can suddenly receive over 11,000 letters and businesses varying their address to that property," and asked: "Can you give me some reassurance that my constituent is not going to be facing any formal demands or enforcement action from HMRC because of this mix-up?"
Mr Harra said HMRC had taken action in March to prevent further correspondence to Mr Davies' address. But when Mr Lake pointed out his constituent had continued to receive letters since then, the tax boss admitted that "what we can do with our existing systems is imperfect" and would look into putting more flags on the system.
Mr Harra said the department was still carrying out its investigations into the incident, which he acknowledged was "extremely inconvenient and distressing" to Mr Davies, and that they are looking at how they can tighten up their procedures to stop it from happening again.
He said: "We are now putting some checks in - which from our point of view are not being driven by compliance risk, but being driven by the risk of inconvenience and distress to people - where we are now checking whether addresses are residential addresses which may not be connected with a large number of cases, or whether in fact they are recognised serviced off addresses where you would expect these businesses to be."
Following the meeting, Mr Davies told WalesOnline he was "dumbfounded" and "surprised" by the response that HMRC had found no fraudulent intent in the incident. An HMRC spokesperson said: "Our ongoing investigations into this incident to date have produced no evidence of any fraud against HMRC. We apologise to the homeowner for the distress caused. We’re reviewing our operational processes for managing high volume address changes, including understanding any vulnerabilities in our systems associated with this behaviour."
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