VAT Fraud or not?
Discussion
I'm mightily peed off with a situation but I can't quite understand what the benefit might be, here is the story.
Am building a self build so can claim the VAT back on materials. I contacted an online tile retailer (Ret1) who I asked for a price on a particular tile. I explained my situation and asked for an ex vat cost. When they called back they supplied a price and I asked whether ex vat and they said it included VAT and delivery. I placed the order and asked them to ensure I received a VAT invoice.
Tiles supplied and delivered to satisfaction and I received an emailed invoice with the gross cost broken down by tile. I replied and asked for a VAT invoice and received an updated version detailing the VAT amount and rate. The problem was no VAT number which HMRC would therefore reject. I again asked specifically for the VAT number and was told they are not VAT registered.
Obviously very naughty, however the plot thickened when I check the delivery note to see that the wholesaler supplied to another company name (Ret2) which appears (checked turnover) to be VAT registered.
So Wholesaler supplies to Ret2 who supplies to Ret1 who supplies to me.
Wholesaler must charge VAT, Ret 2 claims as input transaction and then supplies to Ret2. Assuming this is "at cost", the only scam I can see is a moral fraud that Ret2 is showing a Gross cost and effectively ripping off the trades people as they can add their margin without vat and therefore supply cheaper.
Thoughts?
Am building a self build so can claim the VAT back on materials. I contacted an online tile retailer (Ret1) who I asked for a price on a particular tile. I explained my situation and asked for an ex vat cost. When they called back they supplied a price and I asked whether ex vat and they said it included VAT and delivery. I placed the order and asked them to ensure I received a VAT invoice.
Tiles supplied and delivered to satisfaction and I received an emailed invoice with the gross cost broken down by tile. I replied and asked for a VAT invoice and received an updated version detailing the VAT amount and rate. The problem was no VAT number which HMRC would therefore reject. I again asked specifically for the VAT number and was told they are not VAT registered.
Obviously very naughty, however the plot thickened when I check the delivery note to see that the wholesaler supplied to another company name (Ret2) which appears (checked turnover) to be VAT registered.
So Wholesaler supplies to Ret2 who supplies to Ret1 who supplies to me.
Wholesaler must charge VAT, Ret 2 claims as input transaction and then supplies to Ret2. Assuming this is "at cost", the only scam I can see is a moral fraud that Ret2 is showing a Gross cost and effectively ripping off the trades people as they can add their margin without vat and therefore supply cheaper.
Thoughts?
Someone more knowledgeable than me will be along soon I am sure but I always thought it was illegal(?) to quote VAT on an invoice without actually being VAT registered?
Presumably one of the companies is putting in a huge VAT reclaim every quarter though so the HMRC must be aware of it.
If it were me I would be telling them to come and collect their tiles and refund, or discount by a very decent margin, like 20%.
Presumably one of the companies is putting in a huge VAT reclaim every quarter though so the HMRC must be aware of it.
If it were me I would be telling them to come and collect their tiles and refund, or discount by a very decent margin, like 20%.
NorthDave said:
Someone more knowledgeable than me will be along soon I am sure but I always thought it was illegal(?) to quote VAT on an invoice without actually being VAT registered?
Presumably one of the companies is putting in a huge VAT reclaim every quarter though so the HMRC must be aware of it.
If it were me I would be telling them to come and collect their tiles and refund, or discount by a very decent margin, like 20%.
It is illegal. Unfortunately the tiles had to be used as the tiler was booked in. It would have delayed everything.Presumably one of the companies is putting in a huge VAT reclaim every quarter though so the HMRC must be aware of it.
If it were me I would be telling them to come and collect their tiles and refund, or discount by a very decent margin, like 20%.
Big_Dog said:
So they told you the price included the VAT then after selling you the tiles, no VAT number. If they were not at least 20% cheaper than the competition call the VAT office. Most helpful in my experience.
Have already spoken to them and they are of course interested. I wondered what the potential benefit to the retailer was though as assuming their own supplier company has to charge VAT.worsy said:
So Wholesaler supplies to Ret2 who supplies to Ret1 who supplies to me.
Wholesaler must charge VAT, Ret 2 claims as input transaction and then supplies to Ret2. Assuming this is "at cost", the only scam I can see is a moral fraud that Ret2 is showing a Gross cost and effectively ripping off the trades people as they can add their margin without vat and therefore supply cheaper.
Thoughts?
(ignoring for the moment the 'invoice' that showed a breakdown of the costs with and without vat)Wholesaler must charge VAT, Ret 2 claims as input transaction and then supplies to Ret2. Assuming this is "at cost", the only scam I can see is a moral fraud that Ret2 is showing a Gross cost and effectively ripping off the trades people as they can add their margin without vat and therefore supply cheaper.
Thoughts?
I must be missing something as it doesn't make sense to me, where is the benefit to Ret1 or Ret2?
Are they connected?
vat is reclaimed and not paid.
VAT man doesnt get a cut as Ret2 VAT reclaim cancels the WS VAT charge.
Ret1 buys from Ret2 at cost and not being VAT registered can whack an extra 20% on top.
This will work until Ret1 hits VAT reg turnover limit.
Ret1's books need a fine tooth comb applied.
VAT man doesnt get a cut as Ret2 VAT reclaim cancels the WS VAT charge.
Ret1 buys from Ret2 at cost and not being VAT registered can whack an extra 20% on top.
This will work until Ret1 hits VAT reg turnover limit.
Ret1's books need a fine tooth comb applied.
ringram said:
vat is reclaimed and not paid.
VAT man doesnt get a cut as Ret2 VAT reclaim cancels the WS VAT charge.
Ret1 buys from Ret2 at cost and not being VAT registered can whack an extra 20% on top.
This will work until Ret1 hits VAT reg turnover limit.
Ret1's books need a fine tooth comb applied.
Does Ret2 not add vat to the sale to Ret1? VAT man doesnt get a cut as Ret2 VAT reclaim cancels the WS VAT charge.
Ret1 buys from Ret2 at cost and not being VAT registered can whack an extra 20% on top.
This will work until Ret1 hits VAT reg turnover limit.
Ret1's books need a fine tooth comb applied.
Strikes me that if the company was VAT registered everything would be above board.
Because they aren't they are at a disadvantage because they cannot reclaim the VAT from the supplier and can't charge you any hence effectively it is costing them 20% extra just to trade.
SO it sounds like they are trying to pretend to charge you for the VAT that they have to pay to the supplier (which they can't legally do).
SO it is illegal, but all they have to do is get VAT registered to address this so I cant understand why they don't
As to fraud- morally you wouldn't consider it fraud as there is no gain in doing it over just VAT registering yourself. I cant understand what they are doing
Because they aren't they are at a disadvantage because they cannot reclaim the VAT from the supplier and can't charge you any hence effectively it is costing them 20% extra just to trade.
SO it sounds like they are trying to pretend to charge you for the VAT that they have to pay to the supplier (which they can't legally do).
SO it is illegal, but all they have to do is get VAT registered to address this so I cant understand why they don't
As to fraud- morally you wouldn't consider it fraud as there is no gain in doing it over just VAT registering yourself. I cant understand what they are doing
To answer the connection issue, yes they are run by the same directors.
I assume this is happening.
Wholesaler costs 1000 + Vat at 20% (200)
Ret 2 pays 1000 and claims 200 as input VAT
Ret 1 buys at 1000 + vat at 200
Ret 1 sells to me at 1800
Making profit of 600
If Ret 2 sold to me they would need to sell at 1500 + vat (300) to be the same cost and therefore making a profit of only 500.
Does that make sense?
I've lost 300, 200 to VAT and 100 to additional margin.
Edited to get 1 and 2 the right way round.
I assume this is happening.
Wholesaler costs 1000 + Vat at 20% (200)
Ret 2 pays 1000 and claims 200 as input VAT
Ret 1 buys at 1000 + vat at 200
Ret 1 sells to me at 1800
Making profit of 600
If Ret 2 sold to me they would need to sell at 1500 + vat (300) to be the same cost and therefore making a profit of only 500.
Does that make sense?
I've lost 300, 200 to VAT and 100 to additional margin.
Edited to get 1 and 2 the right way round.
Edited by worsy on Wednesday 24th July 17:28
worsy said:
To answer the connection issue, yes they are run by the same directors.
I assume this is happening.
Wholesaler costs 1000 + Vat at 20% (200)
Ret 1 pays 1000 and claims 200 as input VAT
Ret 2 buys at 1000 + vat at 200
Ret 2 sells to me at 1800
Making profit of 600
If Ret 1 sold to me they would need to sell at 1500 + vat (300) to be the same cost and therefore making a profit of only 500.
Does that make sense?
I've lost 300, 200 to VAT and 100 to additional margin.
Except for you now switching Ret 1 and 2 round, yes that makes sense now. I assume this is happening.
Wholesaler costs 1000 + Vat at 20% (200)
Ret 1 pays 1000 and claims 200 as input VAT
Ret 2 buys at 1000 + vat at 200
Ret 2 sells to me at 1800
Making profit of 600
If Ret 1 sold to me they would need to sell at 1500 + vat (300) to be the same cost and therefore making a profit of only 500.
Does that make sense?
I've lost 300, 200 to VAT and 100 to additional margin.
So nobody has done anything wrong or illegal.
(ignoring a probable staff error in giving you a breakdown to show a vat 'figure')
Presumably Ret2 has only been on the go for a short time, or they have a low turnover.
Maybe they were set up to deal with retail customers and Ret1 normally deals with trade.
The 'group' make a better margin on retail sales.
Is there a history of the directors having a series or Ret2's ?
i.e. setting up and running a 'retail' sales co till it gets near the vat threshold then closing it and starting another.
Lastly, I presume they were a competitive price?
JM said:
worsy said:
To answer the connection issue, yes they are run by the same directors.
I assume this is happening.
Wholesaler costs 1000 + Vat at 20% (200)
Ret 1 pays 1000 and claims 200 as input VAT
Ret 2 buys at 1000 + vat at 200
Ret 2 sells to me at 1800
Making profit of 600
If Ret 1 sold to me they would need to sell at 1500 + vat (300) to be the same cost and therefore making a profit of only 500.
Does that make sense?
I've lost 300, 200 to VAT and 100 to additional margin.
Except for you now switching Ret 1 and 2 round, yes that makes sense now. I assume this is happening.
Wholesaler costs 1000 + Vat at 20% (200)
Ret 1 pays 1000 and claims 200 as input VAT
Ret 2 buys at 1000 + vat at 200
Ret 2 sells to me at 1800
Making profit of 600
If Ret 1 sold to me they would need to sell at 1500 + vat (300) to be the same cost and therefore making a profit of only 500.
Does that make sense?
I've lost 300, 200 to VAT and 100 to additional margin.
So nobody has done anything wrong or illegal.
(ignoring a probable staff error in giving you a breakdown to show a vat 'figure')
Presumably Ret2 has only been on the go for a short time, or they have a low turnover.
Maybe they were set up to deal with retail customers and Ret1 normally deals with trade.
The 'group' make a better margin on retail sales.
Is there a history of the directors having a series or Ret2's ?
i.e. setting up and running a 'retail' sales co till it gets near the vat threshold then closing it and starting another.
Lastly, I presume they were a competitive price?
No idea on the history thing, however Ret2 is retail orientated and suggest a shop premises also, and Ret 1 (where I bought tiles) is trade orientated.
I can't see any immediate advantage for the non VAT registered company to buy the product from the connectd VAT registered company, rather than direct from the supplier. The end cost is still the same.
The only thing I can think of is using the VAT registered company as an in house supplier, so that it buys all stock and then farms out at cost to several connected businesses as they need them. Maybe they have several all operating under the VAT threshold?
If they retail to the public at what would be the RRP inc VAT then they keep the VAT element on the mark up, which over several businesses would add up to a tidy sum I guess.
The only thing I can think of is using the VAT registered company as an in house supplier, so that it buys all stock and then farms out at cost to several connected businesses as they need them. Maybe they have several all operating under the VAT threshold?
If they retail to the public at what would be the RRP inc VAT then they keep the VAT element on the mark up, which over several businesses would add up to a tidy sum I guess.
PurpleMoonlight said:
The only thing I can think of is using the VAT registered company as an in house supplier, so that it buys all stock and then farms out at cost to several connected businesses as they need them. Maybe they have several all operating under the VAT threshold?
If they retail to the public at what would be the RRP inc VAT then they keep the VAT element on the mark up, which over several businesses would add up to a tidy sum I guess.
Yes, I agree that this seems to be the intention. To Joe Public it makes no odds, but it defrauds the VAT man of £100 in my illustration above and that goes into the retailers pocket.If they retail to the public at what would be the RRP inc VAT then they keep the VAT element on the mark up, which over several businesses would add up to a tidy sum I guess.
The fact I could have reclaimed the VAT cost is incidental.
Question is, is it legal?
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