VSME43000 - Checks on zero rating and outside the scope for outputs: check on inputs - special risks
Special attention should be directed to supplies from:
- associated businesses;
- businesses with whom the trader has close links; and
- known suspect traders.
Particular risks to be aware of include:
- quantities on invoices may be overstated;
- tax points may be artificially manipulated so that one or other company obtains a cash flow boost;
- zero-rated or exempt supplies may be misdescribed as positive-rated; completely bogus invoices may have been issued; and/or
- the supplier may be bogus and registered in order to issue false tax invoices to registered accomplices.
Examination of subsidiary records (for example orders, delivery notes, correspondence), and of payments made, may clarify the picture. If these documents and transactions do not fall within the trader’s normal course of business, or procedures, they should be treated with suspicion.
Consider whether the type of purchase is consistent with the trader’s business. For example, where domestic and business premises are shared, input tax deduction might be claimed on items, which are not, or are not wholly, for the purpose of the business.
In the case of a company, which is one of a group of separately registered companies under common control, particular attention should be paid to the rate of growth of intangible services (for example advisory, administrative, consultative) received from the other associates. This applies especially if the two traders’ VAT accounting periods are on different staggers and/or contras or credits are found to frequently follow a period end.
If the growth of such transactions has had the effect of repeatedly depressing net tax liability, the officer should investigate the nature of the transactions and check that the supplies are genuine. In case of suspicion or real doubt as to the authenticity of the transactions, urgent references should be sent to the risk team for the supplier(s) concerned.
When invoices of the “Challenge” or another rudimentary form are produced as tax invoices, or where a series of tax invoices from a particular supplier are in unbroken numerical sequence, they should be viewed with some reserve.
References should be sent to the relevant risk team in cases of suspected fictitious invoices. They should be sent in any case where there is suspicion, of irregularity or fraud at either end of particular transactions, for example where a supplier’s output tax is considered to be at serious risk.
The use of bogus tax invoices has been prevalent in many serious frauds involving false claims for repayments of tax. Evidence of payment should be examined, to confirm the apparent bona fides of tax invoices, and the supplies to which they relate.
If you suspect evasion then please refer to the RIS Evasion Referral intranet pages for further guidance.
A trader may unwittingly claim input tax relief on invoices from unregistered traders, assuming them to have a turnover in excess of the registration threshold. In addition to assessment action you should consider sending a reference via the relevant risk team to the Hidden Economy Team and/or TAPE at the supplier’s VAT office.