Avoiding VAT Missing Trader Fraud

Finding new customers or new suppliers can be a great way to improve a company’s bottom line. However, in pursuing this strategy, care must be taken to avoid being embroiled in VAT missing trader fraud. The Government’s measures to combat such fraud place a responsibility on those who might deal with the fraudsters to take sensible precautions.

If you do not take due care and HMRC can demonstrate that you knew or should have known that your trading was linked to fraudulent tax losses, then you will lose your entitlement to claim the input tax linked to those transactions.

How to spot VAT missing trader fraud

Be suspicious if the business you are dealing with show any of the following characteristics.

  • Newly established or recently incorporated companies with no financial or trading history.
  • Contacts have a poor knowledge of the market and products.
  • Unsolicited approaches from organisations offering easy profit on high value/volume deals for no apparent risk.
  • Repeat deals at the same or lower prices and small or consistent profit.
  • Instructions make payment to third parties or offshore.
  • Individuals with prior history of wholesale trade in high value, low volume goods such as computer hardware and mobile phones.
  • Unsecured loan with unrealistic interest rates and/or terms.
  • Instructions to pay less than the full price (and often even less than the VAT invoiced) to the supplier.
  • Established companies that have recently been bought by new owners who have no previous involvement in your sector.
  • New companies managed by individuals with no prior knowledge of the product, who hire specialists from within the sector.
  • Entities trading from residential or short-term lease accommodation and serviced offices.

How can you protect your business?

Take care that

  • You know your business, suppliers and your customers
  • You satisfy yourself that a deal looks and feels genuine, and
  • You know the provenance of the goods or services you are being offered

Check that

  • The goods you buy exist and are as described
  • The integrity of your customers and suppliers
  • The commercial viability of the transaction, and
  • That the payment arrangements are realistic

Many of the measures The Change Organisation take in reducing our credit fraud risks (see previous blog here) can also be used to mitigate the risk of being inadvertently involved in VAT missing trader fraud.

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