Tribunal case – MTIC fraud
Missing Trader Intra-Community (MTIC) fraud focuses on the sales of mobile phones and computer software. MTIC fraud, also known as ‘carousel fraud’, usually involves small high value goods such as computer chips or mobile phones which are imported free of VAT from other EU member states. Thegoods are then sold in the UK for an amount including VAT but the fraudulent business never pays the VAT due to HMRC.
In a recent Tribunal case a taxpayer appealed against HMRC’s refusal to make a repayment of input tax amounting to over £2.3m (for the periods 04/06 and 05/06). Two connected companies were involved with the same Managing Director, a Mr Spurgeon.
The Managing Director contended that he had been trading in mobile phones since May 2001 and that he neither knew, nor ought to have known, that the transactions involved were connected with fraud. HMRC disagreed and argued that the Managing Director either knew or should have known that its transactions were connected with fraud. The input tax was withheld after HMRC exercised a de facto blanket policy called ‘extended verification’ from May 2006.
In reaching a decision the Tribunal Judge stated that ‘even though some of the evidence is unsatisfactory we need to consider all of the evidence in the round. We are satisfied from the evidence that the Companies, through Mr Spurgeon, did not know that the transactions that they entered into were connected with the fraudulent evasion of VAT. We have also decided that HMRC have not proved on the balance of probabilities, that the Companies, through Mr Spurgeon, ought to have known that the transactions that they entered into were connected with the fraudulent evasion of VAT and we allow the appeals.’
The taxpayer’s appeal was allowed and the input tax was recoverable. One of the companies is in liquidation so part of the repayment will be paid to the liquidator.