The reverse charge: Checking that the customer is 'bona fide': Reasonable checks for the supplier
Paragraph 9 of Notice 735 sets out the approach HMRC expects a supplier to take to ensure that the customer:
- is registered or liable to be registered for UK VAT,
- is buying the goods for a business purpose.
HMRC would expect the supplier to carry out reasonable checks and the notice lists examples checks. The list should not be seen as being definitive and is certainly not exhaustive.
In addition to those checks listed the supplier should look at the circumstances surrounding the sale and ask himself whether the terms of the sale are too good to be true. For example:
- Has the customer offered to fund the purchase of the goods or services?
- Has the customer offered to pay in advance?
- Has the customer contacted the supplier in a short space of time with an offer to purchase goods or services no matter what the quantity or specifications?
- Has the supplier been paid by someone other than the customer?
- When entering into price negotiations, was it apparent that the price was an important factor?
- Did the circumstances surrounding the transaction (the way the approach was made, the discussions between parties, the speed at which the transactions were concluded) differ from the way other transactions were made?
- Were the number of units different from the normal trading pattern?
More information on what checks a supplier can undertake can be found in paragraph 6.1 of Notice 726. However, not all of the checks will necessarily apply as each business is different. Officers should not treat the above as being prescriptive, but merely as a guide.