Letters you might receive from HMRC about your supply chain
Information and purpose of supply chain letters.
When HMRC is undertaking activity associated with your supply chains, you might receive the following letters.
Tax loss letters
These letters:
tell you that your business is connected to fraudulent activity through your transactions within a supply chain
prompt you to review your business’s assurance practices and check the integrity of your supply chains, considering this information
tell you about the potential implications of being connected to this fraud
HMRC can not disclose the details of the business that has committed the fraud. However, we can tell you the supplier that you have a direct contractual relationship with, to help you find the chain where we’ve identified fraudulent activity.
It is important to note that by identifying your immediate supplier, we are not saying that they have done anything wrong. It allows you to focus your initial supply chain checks, beginning with the named supplier.
You need to consider the immediate risk, and how to prevent or reduce the likelihood of it happening again.
VETO letters (letter notifying of a change to a supplier’s VAT registration status)
These letters:
tell businesses that a supplier in their supply chain has been deregistered for VAT by HMRC
prompt the business to review its due diligence and ensure their own treatment of VAT is correct
Tax loss and VETO letters highlight a risk in a specific supply chain, but we prompt you to review your practices as you may also be exposed to other risks that you do not know about.
CIS — contractor notifications
HMRC notifies contractors when a sub-contractor’s tax treatment changes. Businesses should receive automated letters or notifications through their CIS tax account.
These letters tell the contractor business that from a specified date they need to make payments that reflect the change.
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Purpose
HMRC sends letters to businesses regarding supply chain information, prompting them to review their assurance practices, check the integrity of their supply chains, and consider potential implications of being connected to fraudulent activity.
These letters aim to inform businesses about potential risks in their supply chains, specifically highlighting fraudulent activity through transactions with a supplier. HMRC cannot disclose details about the business committing the fraud but provides information on the immediate supplier involved. This allows businesses to focus initial checks on that supplier and consider risk prevention measures.
Effects on Industry
The letters sent by HMRC have significant effects on industries, companies, and consumers. The identification of fraudulent activity in a supply chain can lead to a loss of reputation and trust among customers. Businesses must review their assurance practices and due diligence processes to prevent or reduce the likelihood of such incidents happening again.
Furthermore, VETO letters (notifying businesses of a change to a supplier’s VAT registration status) can affect companies’ treatment of VAT, requiring them to review their procedures and ensure correctness. This can lead to additional administrative costs and potential financial implications.
Relevant Stakeholders
The following stakeholders are affected by these letters:
- Businesses involved in supply chains
- Contractors notified through CIS tax accounts
- Suppliers deregistered for VAT
- Customers of businesses connected to fraudulent activity
These stakeholders must take necessary actions in response to the letters, including reviewing their assurance practices, checking the integrity of their supply chains, and considering risk prevention measures.
Next Steps
Businesses receiving these letters should:
- Review their assurance practices and due diligence processes.
- Check the integrity of their supply chains, focusing on the immediate supplier identified by HMRC.
- Consider potential implications of being connected to fraudulent activity.
- Implement measures to prevent or reduce the likelihood of such incidents happening again.
Contractors notified through CIS tax accounts should:
- Review their tax treatment and ensure correctness.
- Update their procedures accordingly.
Any Other Relevant Information
HMRC will continue to monitor supply chains for potential risks, sending letters to businesses involved in fraudulent activity. Businesses must remain vigilant and take proactive measures to prevent or reduce the likelihood of such incidents occurring in the future.
Additionally, businesses should note that these letters are not an exhaustive list of risks but rather a notification of potential issues within their supply chain. It is essential for businesses to maintain effective due diligence processes and review their procedures regularly to ensure compliance with relevant regulations and laws.
