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HMRC internal manual

VAT Fraud

HM Revenue & Customs
, see all updates

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: interventions to consider: refusing input tax

Insufficient evidence of receipt of a taxable supply

This could arise where the invoice looks, on face value, to be a valid VAT invoice.

Further guidance can be found at VATF42400.

Invalid invoice

As explained in VATF36433 in order to make a claim for input tax the taxable person must hold a valid VAT invoice. If they do not, HMRC has the discretion whether or not to allow recovery of the input tax.

If a taxable person does not hold a valid VAT invoice then he should (a) be asked to obtain one from his supplier, or (b) asked for additional evidence to show that the supply was received in the course and for the furtherance of the business. The additional evidence should allow you to establish an audit trail from payment through to the supply itself and then to the onward supply. It should also provide clear evidence of the nature of the supply and the taxable person who made the supply.

Further guidance can be found at VATF42500.

Non payment for the supply

If a taxable person has not paid his supplier then he loses his entitlement to input tax credit after six months from the date of the supply.

Further guidance can be found at VATF42600 and VBDR5000.

The Kittel principle

Where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, that taxable person loses his entitlement to the right to deduct. This is known as ‘the Kittel principle’.

Further guidance can be found at VATF50000.

The IS Fini principle

Where it is established, on the basis of objective evidence, that the right to deduct has being relied on for fraudulent or abusive ends a taxable person looses his right to deduct. This is known as ‘the I/S Fini principle’.

Further guidance can be found at VATF42700.