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HMRC internal manual

VAT Accounting Manual

HM Revenue & Customs
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Stagger manipulation between associated businesses: factors to be considered

Our policy is that a direction to align staggers may be issued where there is a consistent pattern of supplies between associated businesses with little or no apparent commercial reason for the supplies to be timed as they are. Similarly a direction may be issued where the primary motivation for the choice of stagger is to generate a cash flow advantage. We are particularly concerned about high value cases, especially (but not only) where there is a suspicion that supplies are overvalued. The term ‘associated businesses’ has a wide meaning in this guidance and is not restricted to Section 839, Income and Corporation Taxes Act (ICTA) 1988.

When considering any case, it is important to remember that HMRC is only likely to be successful where there is evidence that the primary motivation of the businesses’ accounting arrangements is to generate a cash flow benefit at the expense of the revenue. If there are genuine commercial reasons for the arrangements, we may lose at Judicial Review and be criticised for excessive use of our powers.

When reviewing this type of case, you should take the following factors into account (this list is not exhaustive and all factors do not need to be present):

  1. Are the supplies between associated businesses?
  2. Are those businesses on different staggers?
  3. Are supplies of a significant value consistently made at a time that gives rise to a cash flow loss to the revenue because input tax is claimed before output tax is paid?
  4. Are the supplies apparently overvalued?
  5. Are there good commercial reasons (other than VAT cash flow advantage) for timing the supplies in this way? Any representations made by the business must be given proper weight and consideration during the decision-making process
  6. What is the level of supplies between associated businesses? Only consider action to align staggers when input tax claimed on supplies between associated businesses is greater than 75 per cent of total input tax claimed. Look for evidence of supplies contrived to reduce this element.
  7. What is the primary motivation for the companies to be on different staggers?
  8. What effect would the adjustment of the staggers have on the business in addition to the removal of the VAT cash flow advantage? Before issuing a direction to align staggers consider the effect on the businesses and only proceed if the benefit to the Exchequer is justifiable in the light of the loss to the businesses.
  9. Do all the parties have substance (do they each have premises, staff etc as opposed to being little more than “shell” companies)?
  10. Any other factors thought relevant when considering the businesses’ circumstances.

VATAC8100(This content has been withheld because of exemptions in the Freedom of Information Act 2000) VATAC8200(This content has been withheld because of exemptions in the Freedom of Information Act 2000)