Anti-avoidance legislation in Schedule 9A, VATA 1994: the purpose of these powers
The main aim of the powers in Schedule 9A is to stop VAT avoidance exit and entry schemes, which use VAT group treatment and careful timing in order to increase entitlement to deduction of input tax and, at the same time, reduce the obligation to account for output tax.
In practice the existence of Schedule 9A and the court decisions noted above seem to have largely deterred use of such schemes, without the need to use the powers. Nonetheless, such schemes are still a risk and checking for them should be an integral part of the risk analysis process and the normal VAT assurance process for VAT groups.
These powers are not meant to be used as a punitive measure against traders, and their use should never be threatened purely to force a trader to co-operate. The object of the new legislation is to encourage compliance, not to punish. Notices of direction will be issued only where it can be shown that the company or companies in question have operated an unacceptable VAT avoidance scheme.