VAT fraud

Stay vigilant and always check how companies in your supply chain meet regulatory compliance, including VAT compliance.

Value Added Tax (VAT) is a consumption tax that is applied to most goods and services bought and sold for consumption in the UK and also the EU. The rules of VAT also apply throughout the supply chain – from the beginning of a production process where you acquire raw materials, to transport, assemble and packaging, along with storing and shipping the finished products to the final customer. VAT is also applied when you purchase different types of insurance to safeguard everything from your business content, employers’ liability, to public liability.

As most goods and services need to pay VAT, criminals are actively looking for loopholes to commit VAT fraud. According to a report by the European Commission, an estimate of 140 billion euros was lost in VAT revenues in 2018. The figure is expected to rise, prompting HMRC (and its equivalent counterparts in Europe) to crack down.

What is VAT fraud?

VAT fraud is a form of tax evasion. It happens when a company does not charge VAT when they should, or when they charge a customer VAT but does not pay it to the tax authority. It can happen in a variety of formats, including but not limited to:

  • A company asks you to pay in cash (without VAT) for a transaction.
  • A company asks you to break up a payment into several chunks, payable to different companies or individuals, none of them charges VAT.
  • A company uses a false VAT number or a VAT number that belongs to another company.
  • A company buys goods tax-free from other EU countries, sells to domestic buyers (with VAT), but uses the VAT money for themselves instead.

VAT fraud is often complex, involving a string of companies in various jurisdictions. Sometimes, these criminals ‘disappear’ (known as missing trader fraud). They also operate a series of ‘tax loss chain’, and they may also use a normal chain involving unsuspecting companies likes yours to disguise VAT fraud. When these criminals disappear, it will bring a sudden disruption to your supply chain, or worse, it may prompt HMRC to launch an investigation against you. Should the unfortunate happen, get legal advice as soon as possible. You may also call upon our respected investigations team to help you review the case and preserve evidence correctly to prove that you are an innocent party.

Due diligence can minimise your risk

In essence, it is the responsibility of company directors and business leaders to take reasonable steps to verify the integrity of a company’s supply chain. This is why due diligence, performed correctly and adequately by a professional team like Blackhawk Intelligence, is critical.

We are here to protect your commercial interests by carrying out checks to establish the credibility (and legitimacy) of your suppliers, partners and customers. We know that the scope and depth involved in each case should be reasonable and proportional to the value of the transaction of the risk of the investment, this is why our approach is flexible, fully customised to your needs.

Call the due diligence team at Blackhawk Intelligence today on +44 (0)20 8108 9317.