Missing Trader Fraud
Newsletter issue -June 2011.
This is a type of VAT fraud that costs the UK millions of pounds every year. It works like this...
A VAT registered company based in the UK purchases small high-value goods (such as mobile phones) in another EU country and imports them into the UK (with zero-rate VAT). The importer then sells those goods at a VAT-inclusive price within the UK. However, before the VAT collected from the UK customers is paid over to HMRC, the importing company is liquidated and its directors disappear (become a missing trader), leaving the VAT unpaid.
However, this is not the end of the story, as if you are the UK customer who bought those goods from the fraudulent importing company, the Tax Office will block your claim for repayment of the VAT you paid on your purchase. This block can apply whether or not you knew you were part of a fraudulent supply chain.
To avoid involvement in a chain of suppliers that includes a criminal trader you should undertake 'know your customer' checks. These involve carrying out credit and identity checks on your supplier, and on the directors of the company. Also check the goods actually exist and are as described (i.e. new goods). You should be suspicious if you are offered a deal that looks very attractive and has any of the following attributes:
- The company is newly established and has no financial or trading history.
- The company has been acquired recently and the new owners have no previous involvement in your sector.
- The company trades from residential or short-term lease property.
- Your contacts in that company have a poor knowledge of the market and products.
- There is no apparent risk for you in the deal.
- Repeat deals at the same or lower prices and small or consistent profit.
- Instructions to make payments to third parties or into offshore bank accounts.
- You are asked to pay much less than the full market price for the goods.
- You are offered an unsecured loan with unrealistic interest rates and/or terms.