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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: if a supply has been received, was it a taxable supply?

It is also important to remember that the receipt of a taxable supply requires not just that the purported work was undertaken, but also that the supply was made by a taxable person (i.e. a person registered for VAT or liable to be registered for VAT) (see also VATF34000).

Officers should keep in mind the possibility that, even if the purported work was undertaken, it may have been performed by a workforce that was in fact directly engaged by the company making the claim for input tax (and hence any supplies would be outside the scope of VAT). This may arise, for example, if there is evidence that the purported sub-contractor did not employ a sufficient workforce to have carried out the work, though of course you must also consider the possibility that the first sub-contractor may have engaged a further sub-contractor to do the work. PAYE and CIS records may be important evidence in such cases.

Where Departmental systems indicate that alleged suppliers could not have made the taxable supplies as described on the invoices because they had insufficient employees or subcontract staff to carry out the work they were engaged upon a decision to deny input tax should not be taken solely because of the LP’s failure to ascertain its supplier’s capacity to make those supplies. You should instead consider all the relevant evidence relating to the circumstances surrounding the transactions and decide whether (a) there is satisfactory evidence that the alleged taxable supplies were received and, if applicable, (b) whether there is sufficient evidence to show that the taxable person knew or should have known that its transactions were connected with fraud i.e. the Kittel principle.

VATF36140 looks at what evidence is needed to support input tax claims.