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Remember that time HMRC seized NFTs? Yep that’s right! Back in February 2022, HMRC took hold of three NFTs which were involved in a massive £1.4million VAT fraud scheme. Let’s have a look at what went down. 👇
NFT stands for non-fungible tokens. They’re unique (a.k.a non-fungible) digital tokens that are recorded via blockchain to verify authenticity and ownership…
Sorry, let’s try that again in English. NFTs are digital assets. They can’t be copied and they’re created in a very similar way to crypto. Some of the most popular NFTs represent real-world items – such as artwork, celebrities’ limbs, limited edition trainers etc. – but in digital form.
So think crypto coins, but not quite. Same same but different.
NFTs aren’t regulated in the UK. This means there are no set rules or guidelines the creator of an NFT has to follow.
Because NFTs aren’t regulated, creators, investors or traders of the digital artwork also have little to no protection if something goes wrong.
Long story short, a group of three tried to pull a fast one on HMRC. And it’s safe to say that HMRC didn’t have a bar of it.
👉 Here’s what happened:
Using a mixture of stolen and false identities, the trio created 250 fake businesses. We’re talking prepaid unregistered mobiles, false invoices and ‘fake business activity’. Yes, they really pulled out all the stops.
Turns out, all of this was so that they could claim back millions of pounds in VAT. 🤯
VAT (Value Added Tax) is a tax that is added to most goods and services in the UK. There are three rates of VAT but the standard rate is 20%.
Businesses that are registered for VAT can claim the tax back for purchases used for work.
So if you have 250 ‘businesses’, and you have all these falsified documents making it look like all 250 businesses qualify for a VAT refund, then you’re looking at a pretty huge refund from HMRC.
Oh yes. Well HMRC are yet to confirm how or why the NFTs were involved but here’s what we heard on the grapevine…
Some reports suggest that the trio had used their ill-gotten gains from the VAT refund to purchase three digital artwork NFTs.
In this case, they would have assumed that purchasing NFTs instead of depositing a bank cheque would guarantee their dodgy funds would not be recoverable. After all, NFTs aren’t regulated, but GBP and banks are.
Other reports suggest a process known as ‘wash trading’ was also being carried out. This is one way of increasing the value of your NFT. Except it’s artificial and illegal.
Continuously buying and selling an NFT you own, but using different accounts. So the buyer is also the seller. This process boosts the demand of the NFT, which is usually followed by an increase in price.
Nevertheless, whatever they chose to do with the NFTs, they were clearly no match for HMRC. 🙅
Just when you’re confident your gadgets are techier than HMRC’s – boom. They upgrade. And that is pretty much what happened here.
It’s no secret that HMRC can be quite… conservative when it comes to updating their software. But that didn’t stop them from busting this fraud scheme. ❌
Nick Sharp, the deputy director at HMRC
HMRC 1 – tax evaders 0
We say seized, but really HMRC didn’t go in and grab the NFTs like an episode of CSI. After all, they’re digital tokens.
What really happened was HMRC secured a court order to block the resale of the NFTs. So the NTFs are now worthless.
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