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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: approach to due diligence

The ECJ in its judgment in the joined case of Mahageben kft & Peter David (Case C-80/11 and C-142/11) found that the imposition of a strict liability to carry out due diligence checks as a precondition to deduct input tax was unacceptable. Although HMRC does not operate a strict liability due diligence policy we should avoid handing taxpayers the opportunity to argue that they were denied their right to deduct because they breached a restriction that HMRC was not entitled to impose upon it.

Where Officers identify evidence of ineffective due diligence this should be documented as an absence of alternative evidence of the taxable supplies rather than as evidence of a LP failing in its responsibilities to check the bona fides of its supplies and suppliers.

Testing the credibility of due diligence undertaken by a taxable person is still a relevant consideration in deciding whether a taxable person knew or should have known that its transactions were connected with fraudulent evasion of VAT.