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VAT Matters, Issue 10

| Duncan & Toplis | 15 January 2019

Missing Trader Intra Community (MTIC) Fraud

It is a worrying trend that more businesses are unwittingly finding themselves embroiled in this type of fraud.

Recent tribunal cases have highlighted that HMRC are winning more cases against legitimate businesses that in their view have not undertaken the necessary due diligence in relation to their supply chains. This can have severe financial repercussions on a business. You need to be aware of the impact and how you can mitigate the risk by taking some simple steps to protect your business.

What is MTIC Fraud?

Missing trader fraud involves a 'missing' trader who deliberately fails to pay its VAT liability for UK taxable supplies. This fraud is the theft of VAT from the government by exploiting the way VAT is treated within a supply chain where the movement of goods within the chain is outside the scope of UK VAT, often known as a 'tax loss chain'. For example an overseas seller (EU member) supplies goods to a UK 'missing trader' who does not need to pay input VAT to the overseas seller. The missing trader then charges output VAT to the customer but never pays the output VAT to HMRC and then goes missing. The customer assumes the supplier is legitimate and reclaims the input VAT charged by the 'missing trader' and is caught up in a missing trader fraud transaction.

How MTIC Fraud could affect your business

If you are a VAT registered business and HMRC can demonstrate that you knew or should have known that your business transactions were connected to a fraudulent supply chain then HMRC can deny input VAT recovery on those transactions. The government places responsibility on those who deal with the fraudsters. Therefore, it is crucial that your business has processes in place to ensure that you have taken reasonable precautions to avoid transactions with a missing trader.

How to reduce the risk of becoming caught up in missing trader fraud

It is good commercial practice to carry out checks which establish the creditworthiness and legitimacy of potential customers and suppliers. There are some high risk business sectors, such as the electronics/computer component market that are more vulnerable to this type of fraud but we would recommend all businesses review their processes in this respect and implement more extensive checks where appropriate. HMRC will consider specific risks of a particular transaction, the checks made relating to addressing these risks and whether or not the checks were appropriate, adequate and completed in a timely manner. You will also need to demonstrate the results of these checks and what actions have been taken to mitigate the risk.

These checks may include:

  • Obtaining copies of Certificates of Incorporation and VAT registration certificates
  • Verifying the VAT registration number
  • Credit checks using an independent third party
  • Personal contact with the business such as making a visit to their premises (if possible)
  • Obtaining bank details to identify where payments will be made to
  • Ensure all details provided agree to other sources such as the business website or letterheads.

Paper work such as purchase orders, delivery note and invoices should be kept to support your view of a high risk transaction legitimacy.

What might be an indicator of MTIC fraud?

When a business undertakes the checks there may be various indicators that raise alarm bells. For example:

  • Have you been contacted within a short period of time by an existing buyer/seller offering to buy/sell goods of the same specification and quantity?
  • Is your supplier offering deals with no commercial risk to you?
  • Are you being asked to make payments to a third party or offshore bank account?
  • Are deals of a significant size and value being made with no formal agreements?
  • Has HMRC previously notified you that previous deals involving your supplier were connected to fraudulent trading losses?
  • Is there evidence you can obtain that the goods exist in the quality being offered?
  • What recourse is there if the goods supplied are not as described?

If your checks indicate fraudulent training then you should consider ending your trading relationship with the supplier and you may also wish to anonymously inform HMRC.

If you think this might apply to your business or have any concerns, please do not hesitate to contact us for advice.

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