VAT Stuff - Dodgy?
Discussion
Party A is a VAT Registered Limited Company
Party B is a Private Individual
Party C is a VAT Registered Limited Company
Party B is not a Director or anything legally connected with Party A or Party C. Party B is merely a consumer of goods and services supplied by parties A&C.
At the request of Party B, Party A undertakes some work.
On completion of the work Party B requests Party A to invoice not Party B but Party C in order to claim the VAT on Party A's invoice (Party C being a VAT registered business). As there would be no difference in final price should Party C claim the input and charge the output it has been suggested that one of the only reasons this could be is that Party B will settle the total minus VAT with Party C in cash.
This being the case
If Party A complies with Party B's request have any offences been committed, if so, by whom?
If Party A does not comply with Party B's request have any offences been committed, if so, by whom?
Thanks.
Party B is a Private Individual
Party C is a VAT Registered Limited Company
Party B is not a Director or anything legally connected with Party A or Party C. Party B is merely a consumer of goods and services supplied by parties A&C.
At the request of Party B, Party A undertakes some work.
On completion of the work Party B requests Party A to invoice not Party B but Party C in order to claim the VAT on Party A's invoice (Party C being a VAT registered business). As there would be no difference in final price should Party C claim the input and charge the output it has been suggested that one of the only reasons this could be is that Party B will settle the total minus VAT with Party C in cash.
This being the case
If Party A complies with Party B's request have any offences been committed, if so, by whom?
If Party A does not comply with Party B's request have any offences been committed, if so, by whom?
Thanks.
I assume that you are party A.
You have two choices
1) Invoice party B
2) Get an Purchase Order from Party C detailing the work to be carried out, then invoice Party C. As long as you get paid then it doesn't really matter to you how Party C and Party B sort the bill out. THey may or may not be committing a VAT indiscretion!
davidy
You have two choices
1) Invoice party B
2) Get an Purchase Order from Party C detailing the work to be carried out, then invoice Party C. As long as you get paid then it doesn't really matter to you how Party C and Party B sort the bill out. THey may or may not be committing a VAT indiscretion!
davidy
Party A undertook the work for Party B. Party A has not done any work or performed any service for Party C. Therefore, Party A should not issue an invoice to Party C as it has no legal right to do so. Party C has no obligation to pay Party A as Party A did nothing for Party C.
Therefore, Party C cannot claim Input VAT on any invoices issued to it by Party A.
Therefore, Party C cannot claim Input VAT on any invoices issued to it by Party A.
Eric Mc said:
Party A undertook the work for Party B. Party A has not done any work or performed any service for Party C. Therefore, Party A should not issue an invoice to Party C as it has no legal right to do so. Party C has no obligation to pay Party A as Party A did nothing for Party C.
Therefore, Party C cannot claim Input VAT on any invoices issued to it by Party A.
Party B has requested that Party A make it appear that Party C has subcontracted work directly to Party A.Therefore, Party C cannot claim Input VAT on any invoices issued to it by Party A.
If that makes any difference.
Well, that's just plain fraud and could cause massive trouble for Parties A and C if it ever came to light.
The basic rule on claiming Input VAT is that the cost must have been incurred by the claiming entity in the furtherance of its own trading activities. If it is merely passing an invoice through its books just to claim the VAT back and for no other reason, that is a criminal offence - end of story.
The basic rule on claiming Input VAT is that the cost must have been incurred by the claiming entity in the furtherance of its own trading activities. If it is merely passing an invoice through its books just to claim the VAT back and for no other reason, that is a criminal offence - end of story.
Edited by Eric Mc on Tuesday 2nd October 14:42
Eric Mc said:
Well, that's just plain fraud and could cause massive trouble for Parties A and C if it ever came to light.
The basic rule on claiming Input VAT is that the cost must have been incurred by the claiming entity in the furtherance of its own tading activities. If it is mereply passing an invoice through its books just to claim the VAT back and for no other reason, that is a criminal offence - end of story.
Thank you Eric.The basic rule on claiming Input VAT is that the cost must have been incurred by the claiming entity in the furtherance of its own tading activities. If it is mereply passing an invoice through its books just to claim the VAT back and for no other reason, that is a criminal offence - end of story.
And thank you everyone else, very helpful indeed.
FWIW as its blatently obvious I am indeed Party A and I did not comply with the request as it sounded dodgy from the off.
PH, in the time its taken for the VAT officer to get back to me, the question has been answered. Excellent.
It is not that unusual a request. Many directors of their own companies ask for private work to be pased through their businesses - and for the invoices to be made out to the business rather than the individual. It's a moot point as to how "guilty" the Revenue would consider the invoice issuing entity to be. The prime "criminal" is the individual who falsely accounts for the cost in his business records and falsely claims back the VAT.
The supplying entity (Part A in your case) could be found to be guilty of "collusion" in prerpetrating a fraud - if it was obvious that they knew what the receiving party intended to do.
By and large, and depending on how big the fraud is, the Revenue are more interested in the individual who made the false claims.
However, in large cases, both transacting parties can end up being prosecuted.
The supplying entity (Part A in your case) could be found to be guilty of "collusion" in prerpetrating a fraud - if it was obvious that they knew what the receiving party intended to do.
By and large, and depending on how big the fraud is, the Revenue are more interested in the individual who made the false claims.
However, in large cases, both transacting parties can end up being prosecuted.
Eric Mc said:
It is not that unusual a request. Many directors of their own companies ask for private work to be pased through their businesses - and for the invoices to be made out to the business rather than the individual. It's a moot point as to how "guilty" the Revenue would consider the invoice issuing entity to be. The prime "criminal" is the individual who falsely accounts for the cost in his business records and falsely claims back the VAT.
The supplying entity (Part A in your case) could be found to be guilty of "collusion" in prerpetrating a fraud - if it was obvious that they knew what the receiving party intended to do.
By and large, and depending on how big the fraud is, the Revenue are more interested in the individual who made the false claims.
However, in large cases, both transacting parties can end being prosecuted.
So theoretically complying, VAT being alerted and investigating would mean:The supplying entity (Part A in your case) could be found to be guilty of "collusion" in prerpetrating a fraud - if it was obvious that they knew what the receiving party intended to do.
By and large, and depending on how big the fraud is, the Revenue are more interested in the individual who made the false claims.
However, in large cases, both transacting parties can end being prosecuted.
Party C is acting fraudulently
Party A could be colluding to act fraudulently.
Party B who architected the fraud for their own gain walks scot free?
Potentially Party B could be found "less" guilty than the othet twop parties -as they are the instruments of the fraud.
Obviously B could still be prosecuted though.
Think about the ramifications of pushing non-business invoices through a business -
incorrect VAT claims
incorrect tax claims
incorrect statement of accounts profits
incorrect satement of benefits in kind (perhaps) by the business in that it may be paying expenses on behalf of a third party.
the third party might be deemed to have been liabile to a Benefit in Kind tax liability if the expense had been properly reported.
failing to report a BIK can result in further prosecutions and fines on the business
It opens up a whole can of worms and is not worth the risk.
Obviously B could still be prosecuted though.
Think about the ramifications of pushing non-business invoices through a business -
incorrect VAT claims
incorrect tax claims
incorrect statement of accounts profits
incorrect satement of benefits in kind (perhaps) by the business in that it may be paying expenses on behalf of a third party.
the third party might be deemed to have been liabile to a Benefit in Kind tax liability if the expense had been properly reported.
failing to report a BIK can result in further prosecutions and fines on the business
It opens up a whole can of worms and is not worth the risk.
Keep away from this.
I personally know one individual who served a term in HMP Wormwood Scrubs because of a VAT fraud.
It's one thing to "inadvertantly" claim VAT back in your own accounts for something that was actually personal.
However, to deliberately collude with one other VAT registered business and a third party in order to aid and abbet a deliberate VAT fraud is definitely a misdemeanour of a different order.
I personally know one individual who served a term in HMP Wormwood Scrubs because of a VAT fraud.
It's one thing to "inadvertantly" claim VAT back in your own accounts for something that was actually personal.
However, to deliberately collude with one other VAT registered business and a third party in order to aid and abbet a deliberate VAT fraud is definitely a misdemeanour of a different order.
Dont you worry Eric, invoice was written and submitted to Party B, I have no intention of entertaining any of this for a second, I just wondered about the legality of the request to (what amounts to) defraud the VAT.
As soon as the VAT officer comes back to me I'll go through the whole thing and gain a reference number etc, I definitely dont want to be on the wrong side of the VAT, not even for a heartbeat.
As soon as the VAT officer comes back to me I'll go through the whole thing and gain a reference number etc, I definitely dont want to be on the wrong side of the VAT, not even for a heartbeat.
Well as I see it, from a crooks point of view.
Party B has cash, and wants to pay for an item less the VAT (who wouldn't)
Party C claims the invoice as an expense, but is the expense valid to the trading activities of the company?
You say 'carries out work', so is this a labour orientated invoice?
Party C incurs an expense, thus reduces taxable profits, and the director of the company would probably 'pocket' the cash. Now considering the sums we are talking about, it sounds like a large amount of cash for anyone to hide. Banking it would be silly (not to mention they would flag it up at the bank if banked in one go)
I'm also trying to see how party B would use whatever he has purchased?
What i'm trying to say here, is what's the likelyhood of anything being picked up, based on the trading activities of each party.
PS Eric is right, I am purely trying to find a hypothetical scenario.
Party B has cash, and wants to pay for an item less the VAT (who wouldn't)
Party C claims the invoice as an expense, but is the expense valid to the trading activities of the company?
You say 'carries out work', so is this a labour orientated invoice?
Party C incurs an expense, thus reduces taxable profits, and the director of the company would probably 'pocket' the cash. Now considering the sums we are talking about, it sounds like a large amount of cash for anyone to hide. Banking it would be silly (not to mention they would flag it up at the bank if banked in one go)
I'm also trying to see how party B would use whatever he has purchased?
What i'm trying to say here, is what's the likelyhood of anything being picked up, based on the trading activities of each party.
PS Eric is right, I am purely trying to find a hypothetical scenario.
If Party B is really crooked, he'll take Plotloss's invoice, copy it made out to Party C and submit it to party C. Party C will then pay via bank transfer to Plotloss's a/c and Parties B and C will collude on how to sort out the cash between them.
Obviously this is very fraudulent!!!
davidy
Obviously this is very fraudulent!!!
davidy
Edited by DavidY on Tuesday 2nd October 16:14
Whooooaaa there hang on.
Party A does the work.
At the end of it he says right who do I make the invoice out to?
The customer (PArty B) says oh here we are hear are the invoice details which are:
Party c ltd
1 any road
anywhere.
End of Transaction.
Now IF party A knew or suspected he was making out an invoice so VAT could be Fraudently reclaimed he may have done something wrong. But he did know or suspect did he!! Say he (Party A)) did some work on say an apartment for lets say Mrs Smith (partyB) when it comes to invoice time party A just asks where the invoice is going to, it could be Mrs Smith herself, Mrs Smith's company (who actually own the flat and the work was done in accordance with that) Mrs Smith's Boyfriend's uncles friends company who owns the flat, It don't matter. Mrs Smith could just be a tenant and her kind landlord is paying for some work and quite legally reclaiming the VAT.
Now a few months later on Party A lets say has not been paid an invoice, he will obviously serve the paperwork on the company or individual he or she invoiced, If a VAT fraud had been committed I would assume that both Party B and C would be quite keen to make the problem go away, without the need for HMRC to pay them a visit. The Key is Party A just did his job, he invoiced accordingly, leave it at that.
Party A does the work.
At the end of it he says right who do I make the invoice out to?
The customer (PArty B) says oh here we are hear are the invoice details which are:
Party c ltd
1 any road
anywhere.
End of Transaction.
Now IF party A knew or suspected he was making out an invoice so VAT could be Fraudently reclaimed he may have done something wrong. But he did know or suspect did he!! Say he (Party A)) did some work on say an apartment for lets say Mrs Smith (partyB) when it comes to invoice time party A just asks where the invoice is going to, it could be Mrs Smith herself, Mrs Smith's company (who actually own the flat and the work was done in accordance with that) Mrs Smith's Boyfriend's uncles friends company who owns the flat, It don't matter. Mrs Smith could just be a tenant and her kind landlord is paying for some work and quite legally reclaiming the VAT.
Now a few months later on Party A lets say has not been paid an invoice, he will obviously serve the paperwork on the company or individual he or she invoiced, If a VAT fraud had been committed I would assume that both Party B and C would be quite keen to make the problem go away, without the need for HMRC to pay them a visit. The Key is Party A just did his job, he invoiced accordingly, leave it at that.
thewave said:
Well as I see it, from a crooks point of view.
Party B has cash, and wants to pay for an item less the VAT (who wouldn't)
Party C claims the invoice as an expense, but is the expense valid to the trading activities of the company?
You say 'carries out work', so is this a labour orientated invoice?
Party C incurs an expense, thus reduces taxable profits, and the director of the company would probably 'pocket' the cash. Now considering the sums we are talking about, it sounds like a large amount of cash for anyone to hide. Banking it would be silly (not to mention they would flag it up at the bank if banked in one go)
I'm also trying to see how party B would use whatever he has purchased?
What i'm trying to say here, is what's the likelyhood of anything being picked up, based on the trading activities of each party.
PS Eric is right, I am purely trying to find a hypothetical scenario.
I think, Party B is driving at:Party B has cash, and wants to pay for an item less the VAT (who wouldn't)
Party C claims the invoice as an expense, but is the expense valid to the trading activities of the company?
You say 'carries out work', so is this a labour orientated invoice?
Party C incurs an expense, thus reduces taxable profits, and the director of the company would probably 'pocket' the cash. Now considering the sums we are talking about, it sounds like a large amount of cash for anyone to hide. Banking it would be silly (not to mention they would flag it up at the bank if banked in one go)
I'm also trying to see how party B would use whatever he has purchased?
What i'm trying to say here, is what's the likelyhood of anything being picked up, based on the trading activities of each party.
PS Eric is right, I am purely trying to find a hypothetical scenario.
Party A's work/goods amounts to £117.50
Party A invoices Party C £117.50 inc
Party C claims £17.50 input
Party C bills Party B for goods/services unrelated to Party A's work (possibly, but not 100%, as zero rated work), Party B pays Party C's bill but also provides a cash payment of £100 to settle the invoice between A&C.
Make sense? I'm struggling to see what advantage there is to B for C to pay A's bill but there must be one otherwise B wouldnt have asked.
Its also highly likely that I am not the first person that this has been requested of.
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