HMRC have recently issued guidance to help businesses avoid getting caught up in missing trader fraud.
Missing trader fraud involves a `missing’ or `defaulting’ trader who deliberately fails to pay its VAT liability for taxable supplies in the UK. The supplies may pass through a number of intermediary traders before being sold to an end user in the UK or exported or despatched to an overseas customer, creating a supply chain known as a `tax loss chain’. A non-tax loss chain may be used alongside the tax-loss chain to disguise the VAT losses.
Where a business knew or should have known that a transaction was connected with e VAT fraud, HMRC may refuse a VAT claim in respect of that transaction. In determining whether the business should have been aware of the VAT fraud, HMRC will consider whether it took reasonable steps to verify the integrity of the supply chain.
To ensure that you are protected, we recommend that you undertake checks to verify the legitimacy of your customers and the viability of the goods as described by the supplier. Questions we would ask include:
- What is the customer’s/supplier’s history in the trade?
- Have you been contacted in a short space of time by a prospective buyer and seller offering to buy/sell the goods of the same specification and quantity?
- Has the supplier referred you to a customer who is willing to buy the goods
- Does the supplier offer you deals at no commercial risk to them?
- Are you being offered deals that have a consistent or pre-determined profit regardless of date, quantities or specifications involved?
- Are you being asked to make payments to a third party or to an offshore bank account?
- Are the goods adequately insure?
- Are high value deals being offered without formal contractual arrangements?
- Are high value deals being offered by a newly established supplier with minimal trading history?
- Have you previously been notified by HMRC that previous deals with the supplier were connected with VAT fraud?
As regards checking the viability of the goods as described by the seller, you should check that you are sure that the goods exist in the quantity and specification offered and that they are in good condition. You should also be wary of large quantities of goods with non-UK specifications offered for supply in the UK and check what remedies are available if the goods are not as described.
Written by the Tax Advise Network