Source · Select Committees · Public Accounts Committee
Recommendation 23
23
Accepted
HMRC's persistent system failures continue causing erroneous VAT debt demands to single address.
Conclusion
Over a six–month period in September 2022, a large number of VAT– registered overseas businesses changed their registered address to one residential property in Cardiff. The resident received more than 11,000 letters from HMRC and debt collection agencies regarding unpaid VAT.68 The previous Public Accounts Committee raised this issue on several occasions in the past but the taxpayer continued to receive letters, including demands for payments.69 This Committee is aware of letters sent to the resident’s address as recently as October 2024 with demands from HMRC for unpaid VAT and import duties. We raised this with HMRC, and it told us that it had previously put overrides in place to prevent automated correspondence going to the address, but the most recent letters involved manual processes within HMRC. HMRC told us that it will seek to educate its officials to not issue letters to the address, and it is investigating each time a letter is sent to the address.70
Government Response Summary
The government agrees with the recommendation to strengthen controls on VAT registrations and will conduct a feasibility study to explore options for enhanced address validation within the VAT registration service, with implementation targeted for April 2026.
Government Response
Accepted
HM Government
Accepted
5.1 The government agrees with the Committee’s recommendation. Target implementation date: April 2026 5.2 HMRC already has robust controls in place but will continue to strengthen them over time. Elements of the recommendation are already embedded in current ways of working. HMRC is conducting a feasibility study to explore options to strengthen controls through enhanced address validation (detailed below), within the VAT registration service. 5.3 At the point of VAT registration, customers and their agents are currently asked to complete the address field using a fixed address look-up service, which uses valid UK addresses to reduce the risk of customer error or fraud. Preventative risking controls were introduced in 2023 to improve the identification of bulk address submissions that relate to a single address. HMRC is already exploring options for enhancing address validation and verification of UK establishment during the VAT registration process. This will determine the feasibility of linking registration checks to verification and identification of risks. This feasibility study will complete by 30 June 2025, with an anticipated implementation date of 31 March 2026. 5.4 HMRC recognises the risks relating to overseas businesses purporting to be established in the UK to the online marketplaces on which they sell. Legislation introduced in January 2021 makes online marketplaces liable for the VAT on sales made in the UK by an overseas seller. Where an online marketplace gets the liability wrong, because they have incorrectly determined the place of establishment of the seller, HMRC can raise assessments against the online marketplace to recover the lost VAT. In addition, HMRC will continue to carry out risk-based compliance checks and, where appropriate, disclose to an online marketplace information relating to the place of establishment of a seller on that online marketplace. This allows for an early recognition and agreement of an online marketplace’s true tax liability. 5.5 HMRC will write to the Committee in 6 months’ time to update progress on this recommendation and will provide a final summary upon the completion of the activities outlined above in April 2026.