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HMRC internal manual

VAT Fraud

HM Revenue & Customs
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Contrivance: The way the taxable person trades: Finance

In order for a taxable person to conduct his business he needs to ensure that he has the correct funding with which to make purchases. Ascertaining how the business is funded can determine whether what you see and have been told is credible (VATF33000) and can then determine whether the transactions are contrived.

Aspects to consider include:

  • Has the taxable person taken a loan?
  • If the taxable person has been funded by directors and/or shareholders, where did their funding come from?
  • Who provided any loan, for example was it a customer / supplier / director of an associated company?
  • How was the taxable person introduced to the person who provided the loan?
  • What is the credibility of the person / company making the loan, and what steps did the trader take to establish this?
  • What evidence is held of the terms of the loan, including the interest and how the loan is to be repaid? How credible are the terms?
  • Has the trader broken the terms of the loan and, if so, what action has been taken by the person making the loan?
  • How was the loan received by the trader? For example, did the trader and the person making the loan both use the same banking facility?

The above list is not exhaustive.