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VATF62100 | Contrivance: The way the taxable person trades: How the transactions were undertaken, the length and participants of the chain

From HM Revenue & Customs · VAT Fraud

Verifying the supply chain as part of testing the credibility of the taxable person’s business (VATF33500) will assist you in determining whether it was a contrived chain. Whilst undertaking the verification exercise you should consider the following and how these vary from the normal commercial practices (VATF32100, VATF32200 and VATF32300):

  • how suppliers and customers are identified;

  • whether goods can be traced back to an authorised distributor, manufacturer or importer/acquirer;

  • non-compliance with any statutory or regulatory obligations concerning the provision of the service;

  • buying and selling goods in exactly the same quantity and for the same specification;

  • transactions undertaken in a short space of time (e.g. the goods were bought and sold by all parties within the transaction chain on the same day);

  • suppliers recommending customers and vice versa;

  • continuing to purchase from suppliers despite warnings from HMRC that earlier transactions had been traced to fraudulent evasion of VAT;

  • what action is taken prior to the transactions being agreed (e.g. negotiation on price, amount of research undertaken);

  • the length of the transaction chain and the pattern of mark-ups (VATF33300 and VATF62400);

  • anomalies in the dates/sequence of events regarding the purchase/sales orders/invoices from the parties within the transaction chains;

  • the amount of advertising and/or promotion undertaken by the taxable person in relation to the goods and/or services (VATF62700);

  • how the goods are paid for (VATF62200);

  • whether the supplier in one transaction became a customer in another or vice versa;

  • if the goods were acquired from a business located in another Member State or from outside the EU, whether the goods were dispatched to the business (VATF62300);

  • if different types or models of goods or different services were traded whether the participants in the transaction chains were the same;

  • the value added by the taxable person

The above list is not exhaustive.