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HMRC issues new VAT avoidance scheme guidance

Gareth Bevan 27 October 2017 No comments

New VAT avoidance scheme guidance

HMRC has published new VAT avoidance scheme guidance. Spotlight 38 covers the subject of VAT: supply splitting tax avoidance schemes.

The aim of the Spotlight series is to alert taxpayers to tax avoidance schemes HMRC is aware of and currently investigating. The intention is to warn businesses against using the schemes. HMRC advise that if you use an avoidance scheme, they will:

  • open an enquiry into your tax affairs
  • seek full payment of any tax due, plus interest
  • charge penalties where appropriate.


What is supply splitting?

Spotlight 38 concerns attempts by businesses to avoid VAT by splitting a single supply of goods or services into separate supplies. Where the result is that a lower rate of VAT applies on each separate supply than on the single supply, it is classed as supply splitting.

HMRC confirm that all VAT supply splitting arrangements that have been designed to reduce the amount of VAT owed to the government is viewed as tax avoidance.

HMRC state that such arrangements should be taxed as a single supply where:

  • multiple suppliers are used where the same elements could be provided by one supplier
  • the customer has no opportunity to decline to take one of the individual elements.


What to do if you are at risk?

Businesses who think they may be involved in this activity are advised to decide whether their arrangements could be classed as supply splitting by referring to HMRC’s approach to single and multiple supplies and taking appropriate action where necessary.

If HMRC decide VAT supply splitting has taken place they will challenge the arrangements, and this may include applying the Halifax abuse principle and taking cases through the courts.

Very few issues of Spotlight focus on VAT avoidance schemes so this type of VAT scheme is clearly of concern to HMRC. If the new guidance is likely to have implications for your business we recommend you seek professional tax advice on the best way to ensure compliance with HMRC requirements. Please get in touch if you require any further information or assistance.