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HMRC internal manual

VAT Groups

HM Revenue & Customs
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VAT avoidance - groups of companies statement of practice on the new Schedule 9A VATA 1994: if Customs suspect VAT avoidance

If Customs believe a VAT avoidance scheme has been implemented then, save where fraud is also suspected, a Customs officer will discuss his concerns with the taxpayer and invite an explanation as to whether or not, for example, a particular transaction falls outside the powers under the commercial purpose test.

If Customs are subsequently satisfied that a direction and assessment should be made, then their intentions will be set out in a pre-direction letter against which the taxpayer can ask for an internal review. In taking a decision in any one case, Customs will consider all relevant circumstances including the appropriate form of direction and its future effects. Where more than one remedy is available, Customs will be prepared to adopt the taxpayer’s preferred option providing this does not impose an increased administrative burden (and, obviously, the loss from the avoidance scheme is still neutralised).