VAT fraud – missing trader case
A recent High Court case was concerned with the refusal of HMRC to repay input tax to a business which was involved in the sale of mobile phones and computer chips. The amount of VAT concerned for a three month period in 2006 was over £7million. The High Court upheld the decision of the VAT tribunal and dismissed the appeal.
The reason for the refusal of HMRC to make a repayment was due to Missing Trader Intra-Community (MTIC) fraud, more commonly known as ‘Carousel fraud’. Whilst there did not appear to be any evidence that the business in question was itself involved in fraudulent activities, HMRC was able to prove that other businesses in the supply chain were acting fraudulently. HMRC was of the opinion that the business did not do enough to thoroughly check the supply chain and as stated in the High Court Judgement “those who deal in goods when they knew or should have known of VAT fraud at an earlier stage are not entitled to repayment”.
This case serves as a salutory warning to all businesses of the importance of undertaking due diligence on suppliers such as credit checks and verifying suppliers’ registration information. In business sectors (such as the sale of second hand mobile phones or computer supplies) where there has been knowledge of carousel fraud in the industry it is even more important that a comprehensive analysis of the supply chain is undertaken to ensure as far as possible that fraud is not tainting the supply chain.