VAT – Missing trader fraud
HMRC have published a new leaflet intended as a quick guide on how to spot missing trader fraud when dealing with prospective customers and suppliers. Missing trader fraud also known as ‘carousel fraud’ usually involves the small high value goods such as computer chips or mobile phones which are imported free of VAT from other EU member states. The goods are then sold in the UK for an amount including VAT but the trader goes missing and never pays the VAT due to HMRC.
If a reputable business gets caught up in a fraudulent transaction they risk having VAT input tax deductions removed by HMRC. This is the case if HMRC can prove that a business knew or should have known that your trading was linked to fraudulent tax losses.
Businesses should carry out a proper due diligence process before taking on new customers. This is especially important for businesses operating in areas where there are high incidences of missing trader fraud.
HMRC recommend that businesses be especially suspicious of dealing with businesses with the following characteristics:
- Newly established or recently incorporated companies with no financial or trading history.
- Contacts have a poor knowledge of the market and products.
- Unsolicited approaches from organisations offering an easy profit on high-value/volume deals for no apparent risk.
- Repeat deals at the same or lower prices and small or consistent profit.
- Instructions to make payments to third parties or offshore.
- Individuals with prior history of wholesale trade in ‘high value, low volume’ goods such as computer parts and mobile phones.
- Unsecured loan with unrealistic interest rates and/or terms.
- Instructions to pay less than the full price (and often even less than the VAT invoiced) to the supplier.
- Established companies that have recently been bought by new owners who have no previous involvement in your sector.
- New companies managed by individuals with no prior knowledge of the product, who hire specialists from within the sector.
- Entities trading from residential or short-term lease accommodation and serviced offices.
Businesses need to look at all the holistic features of a transaction to help determine whether or not a transaction is more likely than not connected with fraud. In a nutshell if a transaction seems too good to be true it probably is.