Azets: HMRC targeting supply chain VAT fraud

Azets: HMRC targeting supply chain VAT fraud

Veronica Donnelly

Company directors who either commit VAT fraud or fail to demonstrate procedures to prevent VAT fraud in the supply chain are being targeted by HMRC with a trader monitoring campaign shaped by The Kittel Principle.

This principle defines whether a director has been fraudulent, knew about a fraud or, more particularly, should have known about a fraud.

Veronica Donnelly, a VAT expert with accountancy firm Azets, is warning that directors need to be aware of The Kittel Principle, and the punitive penalties that await those who fall foul of the rules.

Ms Donnelly, VAT partner in Scotland with Azets, said: “There is a huge burden of responsibility now on Directors to review, assess, check and police VAT and tax compliance in the supply chain, with severe penalties for getting it wrong. The potential for getting it wrong is vast, with ignorance of the width of the rules being a major issue.

“Directors are legally obliged to demonstrate that their VAT returns and crucially, VAT charges by any suppliers or contractors, are accurate and truthful. The burden of proof and proactivity is now squarely on Directors, it is not incumbent on HMRC to give specific guidance. It amounts to a seismic shift that carries high risks for mistakes, ignorance, taking poor advice and poor data management.”

The Kittel Principle, which stems from a European court case in 2006 and set in UK law in 2017, is being actively implemented by HMRC as the framework against which suspected VAT fraud is assessed.

The onus is on Directors to not only ensure their business is compliant, but also to ensure their supply chain is compliant and any fraud risk is identified and removed. Directors must also demonstrate that clear policies are in place, are fully documented and are being actively implemented.

Ms Donnelly continued: “VAT is one of the big three taxes, a source of significant revenue loss to the Exchequer and now a major focus for revenue recovery. Directors and business owners are already responsible for ensuring that VAT reporting is Digital and for ensuring returns are timeous. VAT liability has become a major burden on Directors and these monitoring exercises are taking the revenue recovery campaign to a new level.”

She concluded: “We would encourage Directors concerned about their liabilities and the VAT reporting status and across their supply chain to seek advice as soon as possible.”

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