How to spot missing [610526]

How to spot missing
trader VAT fraud
A guide to helping you protect yourself or your
business from organised criminals
If you are a VAT registered business it is important that you read this leaflet.
If you do not take reasonable care and HMRC can demonstrate that you knew or
should have known that your transactions were connected to missing trader fraud
then you may lose your entitlement to claim the input tax linked to those transactions.

What is missing trader fraud?
Missing trader fraud involves a ‘missing’ or ‘defaulting’ trader who deliberately
fails to pay its VAT liability for taxable supplies made in the UK. Those supplies
may pass through a number of intermediary traders before they are either sold
to an end user in the UK or dispatched/exported to an overseas customer. These
supply chains are known as ‘tax loss chains’. In some cases the organisers of the
fraud will use non-tax loss chains alongside tax loss chains in order to disguise
the VAT losses as part of an overall scheme to defraud HMRC.
What is the impact of missing trader fraud?
Missing trader fraud steals large amounts of VAT from the public purse, which
could be used for essential public services such as hospitals and schools. The
Government’s measures to combat this fraud place a responsibility on those who
might deal with the fraudsters to take reasonable precautions.
How can missing trader fraud affect your business?
If you knew or should have known that your transaction was connected with
fraud then HMRC may refuse your VAT claim in respect of that transaction.
In determining whether you knew or should have known HMRC will consider
all of the circumstances relating to the transaction, including whether you took
reasonable steps to verify the integrity of your supply chain.
How can a business avoid becoming caught up in missing
trader fraud?
It is in your interest to check carefully who you are dealing with. It is good
commercial practice for businesses to carry out checks to establish the credibility
and legitimacy of their customers, suppliers and supplies. These checks may need
to be more extensive in business sectors that are commercially risky or vulnerable
to fraud and other criminality.
HMRC does not expect you to go beyond what is reasonable. However HMRC
would expect you to make a judgement on the integrity of your supply chain and
the suppliers, customers and goods or services within it.

What kind of checks can I undertake to help ensure the
integrity of my supply chain?
The following are examples of indicators that could alert you to the risk of
a connection with missing trader fraud:
1. Legitimacy of customers or suppliers. For example:
• What is your customer’s/supplier’s history in the trade?
• Have you been contacted within a short space of time by a prospective buyer
and seller offering to buy/sell goods of the same specifications and quantity?
• Has your supplier referred you to a customer who is willing to buy goods of the
same quantity and specifications being offered by the supplier?
• Does your supplier offer deals that carry no commercial risk for you –
e.g. no requirement to pay for the goods or services until payment is received
from the customer?
• Are you being offered deals that involve consistent or pre-determined profit
margins, irrespective of the date, quantities or specifications of the goods or
services being traded? Have normal commercial practices been adopted in
negotiating prices?
• Are you being asked to make payments to third parties other than your supplier
or payments to an offshore bank account?
• Are the goods adequately insured?
• Are high value deals being offered with no formal contractual arrangements?
• Are high value deals being offered by a newly established supplier with minimal
trading history, low credit rating etc?
• Is a small, newly-established business offering to supply you with goods cheaper
than a long-established supplier?
• Has HMRC specifically notified you that previous deals involving your supplier
were connected to fraudulent VAT losses?
2. Viability of the goods as described by your supplier. For example:
• Can you be sure the goods exist in the quantity and specification being offered?
• Are they in good condition and not damaged?
• Why are large quantities of goods with non-UK specifications being offered for
supply to you in the UK?
• What recourse is there if the goods are not as described?

Examples of specific checks carried out by existing businesses
The following are examples that may help you to decide what checks you should
carry out. This list is not exhaustive and it is for you to decide what checks you
need to carry out before dealing with a supplier or customer:
• obtain copies of Certificates of Incorporation and VAT registration certificates
• verify VAT registration details with HMRC
• obtain signed letters of introduction on headed paper
• obtain some form of written and signed trade references
• obtain credit checks or other background checks from an independent third party
• insist on personal contact with a senior officer of the prospective supplier,
making an initial visit to their premises if possible
• obtain the prospective supplier’s bank details to check whether (a) payments
would be made to a third party and (b) in the case of an import, the supplier and
their bank share the same country of residence
• check details provided against other sources e.g. website, letterheads,
BT landline records.
Paperwork in addition to invoices may be received in relation to the supplies you
purchase and sell. This documentation should be kept to support your view of
a transaction’s legitimacy. The following are examples of additional paperwork
that some businesses retain:
• purchase orders
• pro-forma invoices
• delivery notes
• CMRs (Convention Merchandises Routiers) or airway bills
• allocation notification
• inspection reports.
What will HMRC look out for when considering the extent
of my checks?
In each case HMRC will seek to identify what actions or precautions you took in
response to any indicators of risk. This will focus on the due diligence checks you
undertook and the actions taken by you in response to the results of those checks.
In each case HMRC will consider:
• the due diligence checks that were performed, including any checks designed
to address the specific risks of a particular transaction
• the extent to which your checks were appropriate, adequate and timely in
relation to addressing the risks identified
• the results of those checks and what action was taken, if any, in response.

Can HMRC tell me exactly what checks I should undertake?
No. The examples contained in this leaflet are only guidelines for the kind of checks
you could make to help you avoid participating in a fraudulent supply chain. The
checks you will need to make, and the extent of them, will vary depending on the
individual circumstances of your trade and it is for you to consider what questions
you need to ask to protect yourself in the particular circumstances of your
individual transactions.
What do I do if my checks indicate that a fraud exists?
If your checks indicate that there may be a fraud you should consider whether
you wish to continue with the transaction. You may also wish to inform HMRC
anonymously using the following link: gov.uk/report-vat-fraud
What will happen if HMRC refuse my VAT reclaim on the grounds
that I knew or should have known of a connection with fraud?
HMRC will send you a decision letter if:
• you have purchased goods or services from a supply chain where VAT was
fraudulently evaded by another person in the supply chain; and
• HMRC believe that you knew or should have known that the transaction was
connected with fraud.
Before a decision is made every case will be independently reviewed and authorised
by a central team within HMRC to ensure there is sufficient evidence to demonstrate
that the above criteria are met.
HMRC will explain the reasons why it considers you knew or should have known
of a connection with fraud in the decision letter.
HMRC may send notification letters to other businesses in the same supply chain
where it considers they also knew or should have known of a connection with fraud.

Appealing a decision to deny a VAT claim
You can ask HMRC to reconsider its decision. If you think there are additional
facts which should have been taken into account please tell HMRC. It is in your
interests to provide any further information as soon as possible.
If you do not agree with the decision you can ask for it to be reviewed by a HMRC
Officer not previously involved in the matter, or you can appeal to an independent
tribunal. Further information about appeals and reviews can be found here:
gov.uk/tax-appeals
Further information concerning VAT tribunals, including ways to contact the
tribunal, can be found here: gov.uk/courts-tribunals/first-tier-tribunal-tax
Further information
You should also be aware that on 30th September 2017 the offence of ‘Corporate
Failure to Prevent the Criminal Facilitation of Tax Evasion’ came into force as part
of the Criminal Finances Act 2017. Companies which fail to prevent representatives
acting on their behalf from facilitating tax evasion can be prosecuted and if found
guilty be subject to an unlimited fine. More information about this offence and
suggested prevention procedures can be found in ‘Tackling tax evasion: Government
guidance for the corporate offences of failure to prevent the criminal facilitation
of tax evasion’ which can be found here: gov.uk government/consultations/tackling-
tax-evasion-a-new-corporate-offence-of-failure-to-prevent-the-criminal-facilitation-
of-tax-evasion
The European Commission has published a guide to facilitate and encourage
increased administrative cooperation between EU Member States and businesses
in order to effectively combat fraud. HMRC supports this initiative as it follows
HMRC’s approach to tackling missing trader VAT fraud. The guide can be accessed
here: ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/
taxation/tax_cooperation/vat_gap/2016-03_guide-on-adm-cooperation_en.pdf

Do you have any comments?
We would be pleased to receive any comments or suggestions you may have about
this leaflet. Please write to:
HM Revenue and Customs
VAT Serious Non-Compliance & Fraud Team
3rd floor
100 Parliament Street
London
SW1A 2BQ
Please note this address is not for general enquiries. You should ring our advice
service about those on 0300 200 3700, or visit: gov.uk/government/organisations/
hm-revenue-customs/contact/vat-enquiries
If you have a complaint or suggestion
If you have a complaint please try to resolve it in the first instance with your
VAT Officer. If you are unable to do so, or if you have a suggestion about how
we can improve our service, please use the following link: gov.uk/government/
organisations/hm-revenue-customs/contact/complain-about-hmrc

Issued by
HM Revenue & Customs
April 2018 © Crown Copyright 2018