Conclusion 5

HMRC’s VAT registrations processes are far too open to abuse, and it is not exploring options to tighten controls sufficiently. Checking whether businesses are genuinely UK established is important for VAT because online marketplaces are liable for VAT from overseas businesses selling on their platforms but not for UK established businesses. HMRC does not routinely check addresses when businesses register for VAT, but says it has confidence that its risk–based checks, combined with due diligence rules for online marketplaces, are working well. Despite this, HMRC seems unable to stop businesses registering for VAT using incorrect addresses, illustrated by the case of an individual in Cardiff who continues to receive letters seeking unpaid tax from HMRC addressed to overseas companies incorrectly registered at his residential address – despite this Committee pressing the issue for over a year. Moreover, HMRC does not appear to be actively exploring options used internationally to tighten wider controls around VAT. Notably, while it recognises transaction–based reporting would give it access to more data to manage compliance risks, it has not carried out any analysis to assess whether it would be good value for money. recommendation a. HMRC should strengthen its VAT registration controls, including by checking more addresses and stopping demands for unpaid tax going to innocent citizens who are unconnected with companies using their addresses, and working with online marketplaces to share information and intelligence effectively. It should write to the Committee in six months to explain how it has done this. b. HMRC should, in its Treasury Minute response, set out its plans to explore the costs and benefits of transaction–based reporting and other controls used in other countries.