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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

Checks on zero rating and outside the scope for outputs: overall credibility

The current system of import VAT payment provides an incentive to importers to reduce by fraudulent means the amount on import VAT payable. Experience has shown that suppression of imports (such as understatement of value or quantity) is a common method used to perpetrate a domestic VAT fraud.

Methods by which importers have evaded or reduced import VAT;

  • outright smuggling (common with gold frauds);
  • failure to submit an import entry (SAD) for all or part of a consignment;
  • use of another traders unique reference number (TURN), or a wholly fictitious TURN on the import SAD, in order to get the goods completely off record;
  • under valuation of goods;
  • misdescription of goods to claim zero-rated liability; and
  • false claim to an import VAT relief.

You need to bear in mind that the percentage of entries selected for check at ports and by Entry processing units (EPUs) is quite low. The fact that an entry has been accepted, and tax appears on a VAT certificate, does not mean that the information declared on that entry is correct.

LVOs are only sent a limited number of official advices of importations and deliveries from warehouse for verification purposes. If you have any such advice on hand, you need to check that the trader has properly accounted for the tax due to importation (or removal from warehouse) and on any subsequent supply of the goods.

Examine the trader’s commercial records (invoices, bills of lading, airway bills, payment records, correspondence for example) sufficiently to satisfy yourself that the trader is properly accounting for tax on imports (or removals from warehouse) and on subsequent supplies of the goods. Treat as a matter for immediate enquiry, any commercial evidence of imports that cannot be traced into the trader’s VAT records.

When testing overall credibility you should bear in mind that monthly VAT certificates are not a complete record of imports. They do not, for example, include goods on which no tax has been paid (either because the goods were declared as zero rated or because a VAT import relief was claimed). More complete records of a trader’s imports can be obtained by interrogating the CHIEF Management Support System (MSS).

Carry out selected checks on the valuation of imported goods VAT Imports.

Act upon Form VAT 453 notifications of import entry errors involving VAT, in accordance with VAT Imports.

Payment for imports of goods often includes payment for associated services, notably payments for royalties and licences, which are not included in the import VAT value of the goods. Such payments are liable to be taxed as imported services (Notice 741 Place of Supply of Services) and you should ensure that this has been properly accounted for. Also check that traders who import computer software are applying the rules set out in Notice 702 VAT Imports, Section 7.