UK Customs & Excise Department Issues Guidance On VAT Fraud

by Robin Pilgrim, LawAndTax-News.com, London

18 August 2003

Following a raid in early July on more than 70 properties in the United Kingdom and Spain as part of an UK Customs and Excise crack down on 'missing trader' or 'carousel' VAT fraud, the department last Wednesday published guidance for UK firms on the subject.

In order to execute the missing trader scam, which is most commonly found in the computer, mobile phone, alcohol, and fuel sectors, a UK VAT registration must be obtained in order to acquire goods VAT free from other EU member states. The goods are then sold on at VAT inclusive prices, following which the fraudster disappears without paying the VAT back to the UK government.

The 'carousel' element comes into play because the goods are then sold to a buyer in another member state - often the original exporter - for less than the price paid to the original seller.

Effective Thursday, C&E announced that it would be applying new rules to the aforementioned sectors.

These stipulate that firms which do not have a valid VAT invoice will not be able to claim back the tax unless they can prove that they took 'reasonable steps' to ensure that their supplier was genuine, and that where a business in the mobile phone or computing sector has reason to suspect that a link in their supply chain will default on their VAT payment, they may be obliged to pay the amount themselves.

However, the department explained that:

'If you have genuinely done everything you can to check the integrity of the supply chain, can demonstrate you have done so, have taken heed of any indications that VAT may go unpaid and have no other reason to suspect VAT would go unpaid, the joint and several liability provision will not be applied.'

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