Therefore being able to show you have taken the necessary steps to prevent fraud from occurring in your supply chain is crucial!

HMRC will be using what is known as the 'Kittel' principal which shows whether a business owner has been fraudulent, knew about the fraud or more importantly should have known about the fraud. 

Business owners need to be alert and able to demonstrate that their VAT returns and VAT charges from suppliers or contractors are 100% legitimate and accurate.

HMRC will view it that it is the business owners responsibility to make sure their business is compliant which includes their supply chain and ensuring any risk of fraud is minimised. This can be by way of policies and key checks that are actively implemented along the way. Business owners need to be able to show documented proof that VAT fraud has been avoided.

If VAT fraud has been committed in the supply chain HMRC can deny the input tax you claim on your expenses. Meaning you could potentially receive a VAT bill from HMRC even if you have paid VAT to a supplier. The Kittle principle suggests you “should have known” the goods were part of a fraudulent supply chain. It's that good old saying “if it seems too good to be true – it probably is”. As well as having to pay back the owed tax, HMRC may also slam you with a penalty for your careless behaviour.

There are a few signs to spotting fraudsters - the cheap price being the most obvious, but they usually trade through newly created Ltd companies with little to no assets. If you are doing your due diligence on any new suppliers such as checking the trading address is legitimate, check where the goods are sourced from etc, as well as ensuring this is all documented, you stand less chance of being done for VAT fraud.

The best practice to follow is to ensure your business has the necessary procedures and due diligence checks in place to minimise the risk of committing VAT fraud, especially with any new supplier.

We are always just a phone call or email away if you need any assistance with your VAT processes. Call us on 07483 388 319 or email admin@booksandbusiness.co.uk.