Missing trader fraud also known as ‘carousel fraud’ usually involves small high value goods such as computer chips or mobile phones which are imported free of VAT from other EU member states. The goods are then sold in the UK for an amount including VAT but the trader then goes missing and never pays the VAT due to HMRC.
If a reputable business gets caught up in a fraudulent transaction they risk having VAT input tax deductions removed by HMRC. This is the case if HMRC can prove that a business knew or should have known that their trading was linked to fraudulent transactions.
This point was clearly proven as part of a recent investigation by the Insolvency Service. A mobile phone wholesaler has been disqualified for 15 years by the High Court. The High Court accepted that the director of the firm either knew or should have known about the connection of his transactions with an enormous £19m VAT fraud.
The disqualification means that he cannot promote, manage, or be a director of a limited company until 2031. Interestingly, these events took place in 2006 so it took over 10 years for the offences to come to light and the resulting disqualification to be confirmed by the High Court.
Commenting on this case Anthony Hannon, Official Receiver in the Public Interest Unit, part of the Insolvency Service, said:
‘This company was involved in trading and making wrongful reclaims in a fraudulent VAT scheme which had been costing the UK Exchequer significant amounts of money at the time the fraud was perpetrated. Regulatory changes, investigative action and legal proceedings have reduced the scale of this fraud from 2007 onwards.’