Craig Mathieson: Second-hand car dealers are in taxman's sights ANY aspiring Arthur Daleys should consider themselves duly warned - special units from HM Revenue and Customs (HMRC) are targeting the second-hand motor trade in Scotland. A task force has been established to visit traders, examine their records and carry out other inquiries for evidence of tax evasion, with an aim to recover £3 million. My own experience in the HMRC vehicle fraud team would suggest that this figure is easily achievable. That's because smaller, independent second-hand dealers typically deal in cash, and the temptation to seek to evade tax is common among many cash businesses. The task force will investigate whether dealers are not declaring sales or are manipulating the second-hand margin scheme - whereby a trader changes the actual price of either the purchase or sale to lessen any profit margin made, thus not declaring the true amount of VAT to HMRC. Such manipulation amounts to deliberate concealment, which warrants a 100 per cent penalty for the evasion of VAT involving dishonesty and, in the most serious cases, criminal proceedings. All of us pay for the fraudulent activity committed by the dishonest owners of cash businesses. Last year's VAT gap was estimated at £9 billion. Tax evasion is widespread among second-hand car dealers. The unequivocal advice to any secondhand car dealer, therefore, is to seek professional advice as a matter of urgency to ensure that their tax affairs are in order. While getting tax affairs in order can be a complex and time-consuming exercise, it's certainly worth doing for cash business traders because, if they don't, they run the very real risk of being hit with a huge penalty. Bearing in mind that, while there's a four-year cap for the correction of errors for VAT, when it comes to matters of fraud, HMRC can investigate the trading record of a cash business going back 20 years. If you operate a cash business, then be in no doubt that HMRC will be watching you. It's only a matter of time before it gets around to knocking on your door. Craig Mathieson is head of the VAT department at French Duncan Chartered Accountants.