HMRC internal manual

VAT Fraud

Contrivance: The way the taxable person trades: How the transactions were undertaken, the length and participants of the chain

Verifying the supply chain as part of testing the credibility of the taxable person’s business (VATF33500) will assist you in determining whether it was a contrived chain. Whilst undertaking the verification exercise you should consider the following and how these vary from the normal commercial practices (VATF32100, VATF32200 and VATF32300):

  • how suppliers and customers are identified;
  • whether goods can be traced back to an authorised distributor, manufacturer or importer/acquirer;
  • non-compliance with any statutory or regulatory obligations concerning the provision of the service;
  • buying and selling goods in exactly the same quantity and for the same specification;
  • transactions undertaken in a short space of time (e.g. the goods were bought and sold by all parties within the transaction chain on the same day);
  • suppliers recommending customers and vice versa;
  • continuing to purchase from suppliers despite warnings from HMRC that earlier transactions had been traced to fraudulent evasion of VAT;
  • what action is taken prior to the transactions being agreed (e.g. negotiation on price, amount of research undertaken);
  • the length of the transaction chain and the pattern of mark-ups (VATF33300 and VATF62400);
  • anomalies in the dates/sequence of events regarding the purchase/sales orders/invoices from the parties within the transaction chains;
  • the amount of advertising and/or promotion undertaken by the taxable person in relation to the goods and/or services (VATF62700);
  • how the goods are paid for (VATF62200);
  • whether the supplier in one transaction became a customer in another or vice versa;
  • if the goods were acquired from a business located in another Member State or from outside the EU, whether the goods were dispatched to the business (VATF62300);
  • if different types or models of goods or different services were traded whether the participants in the transaction chains were the same;
  • the value added by the taxable person

The above list is not exhaustive.