Missing trader fraud
There are so many risks in business nowadays. You need to know your customer to check they aren’t trying to launder money through you, but you also need to know your suppliers to protect yourself from VAT fraud.
If your supplier goes missing and deliberately fails to pay its VAT liability for taxable supplies in the UK, you could end up liable for the VAT. This can apply when you knew, or should have known, that a transaction was connected with VAT fraud. HMRC may refuse your claim for the VAT you paid in respect of that purchase.
In determining whether your business should have been aware of the VAT fraud, HMRC will consider whether you took reasonable steps to verify the integrity of your supply chain. Such reasonable steps would include asking these questions:
- What is your supplier’s history in the trade?
- Are high value deals offered by a newly established supplier with minimal trading history?
- Do those high value deals have no formal contract?
- Are you asked to make payments to a third party or to an offshore bank account?
- Has the supplier referred you to a customer who is willing to buy the goods?
- Has a prospective buyer contacted you shortly after you made contact with the seller, offering to buy the very same goods?
- Are you offered deals that have a consistent or pre-determined profit, regardless of date, quantities or specifications involved?
- Have you been notified by HMRC that previous deals with the supplier were connected with VAT fraud?
You should always check that the goods exist in the quantity and specification offered and that they are in good condition. Also, beware of large quantities of goods with non-UK specifications offered for supply in the UK, and check what remedies are available if the goods turn out not to be as described.