Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Accepted
Strengthen HMRC VAT registration controls and explore transaction-based reporting benefits.
Conclusion
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.
Government Response Summary
The government agrees and states that HMRC will explore additional controls and emerging technologies to reduce tax evasion, including real-time transaction reporting. A joint consultation on promoting e-invoicing and real-time transaction reporting was published in February 2025, with findings to inform future policy.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. and evidence through bilateral and multilateral relationships. Through this, HMRC will explore the viability and effectiveness of additional controls which could reduce the risk posed by tax evasion, recognising the unique context of different countries, which means others’ solutions aren’t always relevant or transferable to the UK. In line with the OECD’s Tax Administration 3.0 vision, HMRC will explore how existing and emerging technologies could support more effortless and compliant models of taxation, where reporting and collection happen in real time through customer and third-party systems. On 13 February 2025, a joint consultation with HMRC and DBT was published: Promoting e-invoicing across UK businesses and the public sector. The consultation will be live for 12 weeks. The evidence gathered will form the basis of future policy design and support ministerial decision-making. It includes examining a range of models, including options for real-time transaction reporting. This consultation closes on 7 May and further development of this work is contingent on this consultation.