Missing trader fraud relies on the abuse of VAT rules between EU member states. In the simplest of cases, buyers are not charged VAT by the supplier but should pay this money to HMRC. They buy the goods, do not pay the VAT, and then disappear. More complex versions of this, often referred to as carousel fraud, can see considerably more money taken by a series of companies before one or more of these organisations disappear.
Missing Trader Fraud
The simplest form of this type of VAT fraud is missing trader fraud. In missing trader fraud, a business buys goods from another EU state, without paying the VAT on those goods. They then sell the goods on to a third party and include VAT on the charge that they levy. In a non-fraudulent case, outstanding VAT would be calculated and paid to HMRC, but the fraudulent trader disappears and goes missing before paying the tax owed.
Carousel Fraud
A complex version of this fraud may include a chain of companies, usually in different EU member states. This enables the fraudsters to perpetuate the offence. They buy goods without paying VAT, and then sell them to another company, who sells them on to a third company who pays the VAT. This final company can reclaim input tax while one of the companies earlier in the chain, often the primary supplier, will disappear.
Contra Trading
Contra trading eliminates the necessity for the broker to submit a claim to HRMC, which is when they will usually first be aware of the potential fraud that has taken place. The broker makes an additional and genuine purchase equal to the value of the VAT that they are defrauding, therefore hiding the tax that they are keeping, and making it much more difficult for HMRC to spot the fraud.
Loss Of The Right To Claim Input Tax
There are a number of actions that HMRC can take against those that are found guilty of VAT fraud schemes such as missing trader and carousel fraud. One recent step that they have taken is to remove the right for those suspected of fraud to reclaim input tax.
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