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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: creative industries tax reliefs: VAT risks / fraud: risks you might encounter

For different types of fraud please see VATF36434.

Intending traders

A person can register for VAT where he is:

  • carrying on a business,
  • has not started making taxable supplies, and
  • has an intention to make taxable supplies in the future,

This is known as an ‘intending trader’.

It is important to establish entitlement to be registered as an intending trader. Further guidance can be found in V1-28: Registration.

Invalid invoice

In order to make a claim for input tax a taxable person must hold a valid VAT invoice. The legal requirements for a valid VAT invoice are set out in Regulation 14(1) of the Value Added Tax Regulations 1995.

Where the taxable person doesn’t hold a valid VAT invoice to support an input tax claim, HMRC has the discretion whether or not to allow recovery of the input tax.

Further guidance can be found at VATF42500.

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Time of supply

The time of supply rules fix the time at which a supply is treated as taking place for VAT purposes. Although often referred to as the ‘tax point’, this is not a term that is actually used in the legislation. A supplier becomes liable to account for VAT once a tax point has occurred and must include it on the return covering the period in which the tax point falls.

It is a fundamental principle that, although a tax point can establish when VAT becomes due, it cannot determine if VAT is due. For example, the fact that a taxable person holds an invoice showing VAT incurred on a pre-payment made for an alleged supply does not necessarily mean they are entitled to claim that VAT as input tax. You must also satisfy yourself that a supply of goods or services has been or is to be made. It will also be necessary to consider the liability of the supply.

Further guidance on time of supply can be found in the VAT Time of Supply guidance manual.

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Place of supply

The place of supply depends on whether the supply is one of goods, services or transport. Guidance can be found in the following:

  • VAT Place of Supply - Goods
  • VAT Place of Supply - Services
  • VAT Place of Supply - Transport

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The supply has not been paid for

Section 26A of the VAT Act 1994 specifies that a taxable person ceases to be entitled to credit for input tax where ‘the consideration for the supply to which that input tax relates, or any part of it, is unpaid at the end of the period of 6 months following the relevant date’ (the ‘relevant date’ being the date of the supply or, if later, the date on which the consideration for the supply became payable).

The requirement to repay input tax in these circumstances, and the method for doing so, is detailed in Regulations 172F to 172H of the VAT Regulations 1995 (SI 1995/2518).

Further guidance can be found at VATF42600.