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What is Missing Trader Fraud?2nd July 2020 Business Crime
In its simplest form missing trader fraud involves a “defaulting” or “missing” traders who fraudulently and deliberately do not pay VAT liabilities for the taxable supply of goods, made in the UK.
The goods supplied will typically pass through the hands of a number of different traders/suppliers before coming into the hands of either:
- An end user in the UK or;
- Being exported to an overseas customer.
Such supply chains are variously known as ‘tax loss chains’, “chain frauds” or “missing supplier” frauds.
In some cases, so as to disguise the VAT losses as part of an overall scheme, the perpetrators of the fraud will use non-tax loss chains alongside tax loss chains to defraud HMRC.
The simplest form of missing trader fraud might look something like this:
- A fraudster imports some goods that are zero-rated in the country of origin; Therefore VAT on the goods should be paid to the Government of the country into which they have been imported.
- Having imported the goods, the fraudster sells them to another trader,
- When he sells the goods he charges not only the price of the goods but also the VAT.
- However having charged VAT he fails to pay the VAT collected to the Government;
Having applied such a scheme an individual has become a "missing trader".
The buyer or end user, who has paid the VAT to the fraudster, will then reclaim the VAT paid from the VAT authorities (HMRC) on his VAT return.
The end user is then in possession of goods which are zero-rated for export purposes.
The result of such a scheme is that the government will lose all the VAT that should have been paid on the goods.
These types of fraud are likely to target high value goods such as Jewellery or mobile phones because they generate the maximum amount of VAT with a minimum number of sales transactions.
A trader (end user) who claims the input tax recovery can be denied the payment of input VAT on a purchase, if he either knew or should have known that he was involved in a supply chain which involves fraudulent evasion of VAT.
However if a trader takes every precaution but gets unwittingly involved he will not be denied input tax recovery.
If a trader either knew or should have known that his transaction was connected with a missing trader fraud then HMRC are likely to refuse the VAT claim concerning the transaction.
HMRC will look closely at the transaction to determine whether the trader knew or should have known that the transaction was fraudulent.
They will also look at all of the circumstances relating to the transaction, including whether the trader took reasonable steps to verify the integrity of his supply chain.
HMRC also have the power to deny any claim which is found to be fraudulent and they may impose civil penalties or, in some cases, take criminal action.
Each case in which a fraudulent claim for input tax is alleged will be decided on a case by case basis dependant on the individual facts.
When investigating individual claims HMRC will look at the evidence available to support the claim. Claimants do have the right to present evidence to HMRC in support of their right to claim/recover input tax.
It is important to note that companies which fail to prevent representatives acting on their behalf from facilitating tax evasion, can be prosecuted for the offence of ‘Corporate Failure to Prevent the Criminal Facilitation of Tax Evasion’ under sections 45 and 46 of the Criminal Finances Act 2017.
If found guilty companies can be subject to an unlimited fine.
If found guilty of Fraud by false representation, fraud by failing to disclose information, fraud by abuse of position under section 1 of the Fraud Act 2006 or Conspiracy to defraud under Common law, individuals may receive terms of imprisonment up to 10 years following conviction in the Crown Court.
If found guilty of False accounting, Theft Act 1968 (section 17) individuals may receive terms of imprisonment of 7 years flowing conviction in the Crown Court.
Based on an increase in the number of enquiries JMW have received, we have noticed that HMRC are particularly interested in transactions carried out in the jewellery trade at the moment.
If you have any questions related to missing trader fraud or any other business crime issues, please do not hesitate to contact us as we have expertise, gained over many years and in on-going cases, to assist and guide you.