It is essential for any company registered for VAT to understand and engage in the exercise of due diligence appropriate to the nature of its operation.
Failure to do so carries the risk of financial loss, the receipt of unexpected VAT assessments and, at worst, a criminal investigation which may lead to criminal prosecution.
At Kangs Solicitors we have encountered, on numerous occasions, situations where the failure to observe due diligence requirements has resulted in severe financial consequences.
What is Due Diligence? | Kangs VAT Due Diligence Advisory Solicitors
Whilst it has no strict definition, essentially, due diligence, when used in a commercial environment, is the taking of precautionary steps and enquiries, by exercising requisite effort, to ensure that a company’s activities are conducted within the law, that financial transactions can be concluded successfully without encountering onerous or potentially dangerous obstacles to fulfilling its objectives, about which it was previously unaware.
In conducting transactions involving companies registered for VAT, this, basically, translates as ensuring that every trading partner is legitimate and exactly as it purports to be, is properly registered for VAT, is paying its dues and is not involved in any fraudulent evasion of the payment of tax.
How Do I Conduct Due Diligence? | Kangs VAT Due Diligence Team
In order to satisfactorily establish the identity of those with whom it is wished to trade, it is wise, in respect of:
- individuals – to obtain officially issued documents such as passports and utility bills and
- companies – to obtain Certificates of Incorporation, VAT Registration Certificates, trade references, to conduct credit checks and to obtain appropriate similar documents, depending upon the nature of the proposed trade, g. with companies registered abroad.
Other steps may be necessary, such as a site visit to business premises of potential trading partners and even the bank through which payment for transactions are to be paid.
Due diligence is a constant and ongoing requirement which should be repeated not only on a regular basis but whenever any event occurs representing a change in circumstances such as a change in the identity of any director or banking arrangements.
Companies are frequently de-registered for VAT purposes and failure to be aware can have serious consequences as the liability for payment of the tax shifts.
What If I Fail To Exercise Due Diligence? | Kangs Financial Fraud Solicitors
The consequences of any default in a situation where VAT has not been properly accounted for can be devastating as there is a clear expectation by the authorities that the exercise of due diligence should be conducted.
Such consequences include:
- Where any company from which products have been purchased has not remitted the VAT payable or submitted returns, any input tax may be disallowed resulting in a VAT assessment being served. Failure to conduct prior due diligence may render it difficult to defeat such an assessment at a VAT Tribunal.
- Under the ‘Kittle Principle’, any company in a trading chain may find itself jointly and severally liable for any defaulting company in that chain.
- If any fraudulent trading or deliberate tax avoidance is suspected then criminal proceedings are likely to follow.
Compliance Visits | Kangs Solicitors Advisory Team
HMRC officers, either by prior appointment or un-announced, are entitled to conduct site visits in order to assess whether or not the preparation of VAT returns is being conducted correctly, whether or not due diligence procedures are being followed and, indeed, whether or not there exists adequate knowledge of the VAT system.
They may offer advice of any nature, will record such advice in writing and may take action if it is not followed.
VAT Due Diligence Requirements | How Can Kangs Solicitors Help?
At Kangs Solicitors we have the expertise to deal with HMRC at all levels.
Our team is led by Hamraj Kang who is recognized as a leading expert in the field of VAT fraud work. He is one of only two solicitors nationally to be ranked as a ‘star individual’ for three consecutive years in the legal directory Chambers & Partners.
You may need advice in relation to visits to your premises by HMRC officers or representation if you are interviewed under caution during the course of a criminal investigation.
If you are subsequently charged we have a vast amount of experience in dealing with trial and post –trial issues such as Confiscation Proceedings.
You should not hesitate to contact: