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HMRC internal manual

VAT Fraud

HM Revenue & Customs
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What to consider prior to determining whether to use an intervention: getting to know the business: understanding the market and business model

It is essential that you fully understand and document the way the market in which the taxable person trades, or intends to trade, operates and his business model. This will allow you to understand the taxable person’s business (VATF32200). You should do this at the very beginning of an assurance visit, with periodic updates (clearly dated) to ensure that if the business model changes those changes are properly documented.

For a taxable person to operate an effective profitable business he needs to know the market in which he is trading or is about to trade, be it in goods or services. This will mean undertaking research in order to identify such things as:

  • if there is a gap in the market for his goods or services;
  • whether the existing market can support another business supplying the goods or services;
  • potential customers and their needs/wants;
  • risks to the business from entering into the market;
  • potential suppliers who can provide him with the goods or services he will need to match his customer’s needs/wants.

Using the information he has gathered he should then be able to create a model for his business, which should set out such things as, but not limited to:

  • how the business is to make money;
  • whether a loan will be needed, who can supply the loan, how it will be repaid (amounts, length of time etc);
  • what the cost of running the business will be (including the number of staff that will be needed, size and number of premises, cost of registering a brand name, advertising and promotion etc);
  • the intended profit;
  • the number of customers and suppliers at the beginning of the venture and how that will increase / decrease / remain static over a period of time;
  • the type of due diligence and / or risk assessments to be undertaken on suppliers and customers;
  • contingency plans in case things don’t go to plan.

You could also discuss the market in which the taxable person trades with experienced colleagues.