From: Peter Saxton 
Newsgroups: uk.finance
Subject: Re: is this VAT fraud?
Date: Fri, 16 Sep 2005 18:43:20 +0100

On Wed, 14 Sep 2005 12:21:43 GMT, Ronald Raygun
 wrote:

>Tim wrote:
>
>> "dietz" wrote
>>> I know someone who is running a VAT registered UK limited company.
>>>
>>> He buys services from another UK VAT registered company,
>>> and claims the VAT back. However, his only customer is an
>>> offshore registered company which isn't VAT registered. The
>>> offshore company then resells the services it bought from Company
>>> A to UK customers, without charging or paying VAT. I should
>>> add that the owner of Company A is also the owner of the
>>> offshore company, which he created specifically for this purpose.
>> 
>> Where exactly is "offshore"?
>> 
>> Question -  If his (UK) Company A doesn't need to charge VAT when selling
>> services to his "offshore" company, then why doesn't the offshore company
>> simply "cut-out the middleman" and buy the services directly from the
>> initial supplier - who wouldn't have to charge the "offshore" company VAT
>> either?
>
>Because the offshore company isn't in it for profit, it's a stooge acting
>as a stepping stone to re-import what company A has exported.
>
>> Or should his UK company really be charging the "offshore" company VAT
>> when it (re-)sells its services?
>
>You don't charge VAT on exports.  On the other hand, this is a bit of
>grey area.  Were the dealing in goods as opposed to services, things
>would be a bit more transparent.  It's a pity the OP started the labelling
>in the middle.  The position AIUI is:
>
I liked the way "Company A" just popped up without any definition!

>Company Z sells to company A.  Z charges A VAT.  A reclaims the VAT.
>A exports to company B (no VAT chargeable).
>Company C re-imports the goods from B.  At this point C ought to pay
>VAT to Customs.  But how are Customs to know, especially if the goods
>never physically leave the country?  Illegal, of course, even if they
>don't find out.
>
>Unlike goods, however, services don't really lend themselves to being
>passed down the line like that, never mind being exported and re-imported.
>It would seem that in reality Z is supplying the services to C, with our
>man Graeme at the helm of A and B acting as a muddleman in the billing
>chain, charging his clients 25% mark-up for the "service" of saving them
>17.5% VAT.  :-)

-- 
Peter Saxton from London
peter@petersaxton.co.uk