Business owners and operators need to be aware of how they can inadvertently become involved in other people’s attempts to steal the Value Added Tax (VAT) owed to government from the sale of goods, or from the importation of goods from international trading partners.

The importation of deliberately undervalued goods into the UK to avoid VAT would be seen by the police as a fraud. If a trader has purchased goods that are part of a supply chain VAT fraud, then if HMRC conclude that the trader had the means of knowledge to know that this was the case, then they would seek repayment of any input VAT claimed by the trader and would inevitably lead to a criminal investigation, including whether the trader is connected to any of the parties organised in the fraud. The common practice in VAT fraud of this type is referred to as Carousel fraud or missing trader fraud (aka MTIC – Missing Trader Intra-Community)

With the UK no longer a member of the European Union, the old method of missing trader fraud (MTIC or Carousel) has effectively become a thing of the past. But not entirely: With the Gulf States opting to introduce VAT to goods since 2018, this provides one open door where another closes.

How can a VAT Fraud begin?

A trader (usually a relatively new company) purchases hugely undervalued goods from the Far East so to deliberately avoid VAT through Low Value Custom Relief. The trader then sells the goods to you at the true value here in the UK charging VAT. The responsibility to pay VAT falls to the trader who imported the goods and sold them to you. However, the trader has gone missing, and the company closed down. You sell the goods on to another company charging them VAT. You then seek to rightfully claim your VAT back from His Majesties Revenue & Customs. The missing trader cannot be realised. HMRC investigate you seeking the VAT back.