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HMRC internal manual

VAT Joint and Several Liability

HM Revenue & Customs
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Establishing whether the JSL measure should be applied: Establishing whether the taxable person 'knew or had reasonable grounds for knowing': ‘Knew or had reasonable grounds for knowing’

It needs to be evidenced that the taxable person ‘knew’ or ‘had reasonable grounds to suspect’ that VAT on the supply or any previous or subsequent supply of ‘those goods’ would go unpaid. In these circumstances the taxable person may be held jointly and severally liable for the ‘net tax’ unpaid in that supply chain.

‘Those goods’ means the very same goods and not goods of the same description. For example, if a taxable person purchases 100 mobile phones from a supplier who bought them as part of an order for 1,000 mobile phones, then he may be held liable under this measure for any unpaid VAT on the 100 phones he has bought and not the 1000 phones which his supplier bought.

‘Net tax’ means the VAT charged on those goods less any input tax incurred on the purchase of those goods by the taxable person who has not paid the VAT. In MTIC cases, it is the defaulter’s output tax that usually remains unpaid and there is, in reality, unlikely to be any input tax to offset this because it will be the UK acquirer or importer.

Provided that a tax loss has been established, this measure can automatically apply in the circumstances where the taxable person has purchased the specified goods at less than the:

  • lowest open market value of the goods; or
  • price payable for them by any previous supplier.

It is for HMRC to demonstrate, to the First-tier Tribunal if necessary, that there has been a VAT fraud and that the taxable person ‘knew or had reasonable grounds to suspect that VAT has gone unpaid’. It is accepted that HMRC must have objective evidence and we must be in a position to explain and provide evidence to show why we think a taxable person is jointly and severally liable. A taxable person is presumed to have reasonable grounds to suspect that VAT would go unpaid if one of the tests above is met. In practice the First-tier Tribunal is unlikely to be satisfied by these alone. In each case, therefore, we must also build up as full an evidential picture as possible to demonstrate that a taxable person knew or had reasonable grounds to suspect that VAT would go unpaid.

To establish whether the taxable person ‘knew or had reasonable grounds to suspect that VAT has gone unpaid’, you will need to gather a range of evidence relating:

  1. to the taxable person’s state of knowledge at the time the transactions took place, and
  2. to the taxable person’s conduct, which will include relevant information about the taxable person’s business practices and pattern of trade.

The evidence required to demonstrate this is very similar to the evidence required to demonstrate that the trader ‘knew or should have known’ that its transactions were connected with VAT fraud (the Kittel principle, which is dealt with in section VATF50000 of the VAT Fraud guidance manual).

(NB: Sections JSL4310, JSL4320, JSL4330 and JSL4340 are examples to illustrate the type of evidence required, and should not be regarded as exhaustive.)