Could you innocently get caught up in a VAT fraud?

HM Revenue & Customs do expect you to be satisfied as to the integrity of your supply chain before entering into a contract with a supplier. If you don't you could easily get caught up in Missing Trader and Carousel fraud and find yourself liable for the VAT that has not been paid over by the fraudsters. The BBC's Panorama programme highlighted one such instance in which a legitimate trader was served with a demand for £13.2 million and had to stop trading. The Daily Mail also highlighted a case where £38 million was stolen by one gang of fraudsters in a six-month period.		The one day seminar, The Essentials of VAT, covers everything a VAT registered organisation must know. At £159 per person places are in high demand and many seminars for 2007 are becoming full - we urge you to book now to avoid disappointment.
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Missing trader fraud works by creating a supply chain in which goods are sold from trader to trader and onwards via several more traders. All the traders charge VAT but one trader disappears without paying the VAT over to HM Revenue & Customs.

Carousel fraud involves goods which go round in a circle. They are acquired from a trader in another EU country and eventually sold back to that trader after a series of contrived transactions. At the time of bringing the goods into the UK they would be free of VAT under EU law. The UK trader who acquires the goods from the other EU country charges VAT on his onward sale to a UK customer but does not account for it.

What should you be doing to avoid finding yourself in the same situation? Such fraud usually involves telephones, computers, associated equipment and software. This includes computer chips, telephone chargers and memory cards, all of which are small but of high value and in high demand. If in the course of your business you acquire such goods and have “reasonable grounds to suspect” that the VAT may not be paid over by your supplier you may be held liable for the unpaid VAT. A prime indicator of a fraud may be that the goods are being sold to you for a price well below market value.

To satisfy yourself as to the integrity of your supply chain you may wish to verify VAT registration details with HM Revenue & Customs; obtain a trade reference; carry out a credit check; or make an initial visit to the seller's premises. Further details can be found in VAT Notice 726 . If you do not carry out these checks and there is a fraud, you risk being served with an assessment as if you had been party to that fraud.

A change in the method of VAT accounting for computer chips, mobile phones and MP3 players, amongst other goods, is expected to be made soon. This will mean that the seller will not charge VAT when selling to another trader, and the buyer will account for the VAT by means of an adjustment to the VAT Return – known as the “reverse charge”. Only the final retailer will charge VAT.

These issues are discussed in the seminar, The Essentials of VAT . This seminar helps people who are involved in the preparation and maintenance of records for VAT purposes understand the implications of VAT and the importance of collecting all the necessary information to complete VAT returns correctly.

You can read more about the cases referred to above by visiting the relevant website for the Daily Mail or Panorama. You can also get further information on the relevant VAT Notice from the HMRC website: VAT Notice 726.

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