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HMRC internal manual

VAT Fraud

What to do if you discover VAT fraud: introduction

It is important that you do not commence your enquiries with a pre-determined outcome in mind.

The aim of your enquiries is to establish the facts and the true nature of the relevant transactions. It is only when this has been established that the validity of the VAT return can be tested and you can make a decision on what course of action to take.

It is essential that you fully understand and document the way the taxable person’s business operates. You should do this at the very beginning of an assurance visit, with periodic updates to ensure that if the business model changes those changes are properly documented.

  • VATF32100 provides background on understanding the market in which the business operates and its business model,
  • VATF32200 provides more detail on understanding a taxable person’s business, and
  • VATF32300 explains the importance of comparing and contrasting the different business streams.

You should always remember that basic VAT rules apply to transactions connected with fraudulent evasion of VAT in the same way that they would apply to any other transaction.

Once you have completed your enquiries and gathered all the information the following courses of action might be open to you:

  • refusing input tax because there was no supply for VAT purposes (VATF34000 and VATF42200);
  • refusing input tax because the supply was not made to the taxable person claiming the input tax (VATF42300);
  • refusing input tax because of insufficient evidence to support the claim to input tax deduction (VATF42400);
  • refusing input tax because the invoice is invalid (VATF42500);
  • refusing input tax because the supply has not been paid for (VATF42600);
  • refusing input tax because the taxable person has relied on his right to deduct for fraudulent ends (VATF42600);
  • refusing zero-rating of dispatches/exports where there is a connection with fraud (VATF43200);
  • assessing for output tax (VATF43300);
  • denying entitlement to the right to deduct input tax using the Kittel principle (VATF50000);
  • application of the Joint & Several Liability measure (VATF44100);
  • application of the reverse charge on specified goods and services (VATF44200);
  • application of penalties (VATF44300);
  • removal of entitlement to use a special accounting scheme (VATF44400);
  • refusing VAT registration or deregistering a taxable person (VATF44500);
  • issuing a Notice of Requirement to pay security (VATF44600);
  • assessing for irrecoverable acquisition tax (VATF44700); or
  • repaying the input tax or net VAT.

You should make a submission to the VAT Fraud Team (VATF85000) where you intend to apply:

  • the Kittel principle (VATF50000),
  • the Fini principle (VATF42700),
  • the Mecsek principle (VATF43230),
  • the invalid invoice statement of practice (VATF42500),
  • an assessment to correct a reverse charge error (VATF44200),
  • the Joint & Several Liability measure (VATF44100),
  • denying registration or deregistering a taxable person (VATF44500).

However, prior to doing this you should ensure that you have collected all the relevant documents and evidence needed to make your decision (VATF82000).

Prior to submitting a case to the VAT Fraud Team you should contact the Evasion Referrals Team (VATF84000).

If your submission is relating to the policy or application of the following, you should contact the relevant policy team and not the VAT Fraud Team:

Area Team
HMRC’s criminal investigation policy  

Civil Investigation of fraud policy including COP9

Civil Investigation of evasion under PN160, PN161 and PN300

HMRC forfeiture policy under PN12A (Seizure and Restoration) Investigation and Civil Enforcement Policy Team (Risk & Intelligence Service, Organised Crime Group)  
  HMRC’s penalties regime (VATF44300) For technical queries: Central Policy Tax Advice Administrative (TAA) team Support Unit
For operational queries: complete the COPGU Question Template    
  Hidden economy operational issues Contact the Hidden Economy Team