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HMRC internal manual

VAT Fraud

What to consider prior to determining whether to use an intervention: matters to consider when looking at particular types of taxable person or activity: labour providers: introduction

General guidance on entitlement to input tax and evidence to support deduction is contained in VIT30000 of the Input Tax guidance manual. Guidance on appropriate interventions in cases suspected of being linked to fraud can be found elsewhere in VATF40000. Labour provider fraud is detailed in VATF23600.

The following guidance does not override these other sources of guidance, but rather is designed to supplement them in relation to issues commonly associated with labour providers.

It is important to bear in mind that there are three fundamental requirements when considering input tax entitlement, which are set out in VATF42100.

  1. The amount claimed must relate to specific supplies actually received by the taxable person for the purpose of their taxable business
  2. Those supplies must have been made by a taxable person
  3. The person claiming the input tax must hold appropriate evidence to support their claim, which must normally consist of a tax invoice.

The above are examined in more detail in the following sections:

  • Has a supply been received? (VATF36120)
  • If a supply has been received, was it a taxable supply? (VATF36130)
  • Evidence to support input tax claims (VATF36140 and VATF36150)

In addition, it may be necessary to consider the Kittel principle (VATF50000), i.e. whether the trader knew or should have known that its transactions were connected with fraudulent evasion of VAT. This is looked at in VATF36160.

Finally, this section looks at de-registering a labour provider under the abuse principle (VATF36170).