Cross border movement of goods - VAT nightmare!
VAT Fraud - Cross border movements of goods: VAT nightmare
Over the last couple of years a major VAT fraud has come to light involving the cross border movement of goods. Fraudsters set up a string of bogus companies in the UK and in ...
Over the last couple of years a major VAT fraud has come to light involving the cross border movement of goods. Fraudsters set up a string of bogus companies in the UK and in other countries, before using these bogus companies to move goods around the ring. At each end of the chain usually there is a legitimate supplier and customer. Ultimately, one of the bogus companies would charge VAT on a particularly large value supply, receive the consideration for the goods including the VAT charged on the invoice and then disappear having not paid over the VAT charged to H M Revenue & Custom. The bogus company would have been located in the UK. This is called “carousel fraud” by H M Revenue & Customs. The goods initially involved in the scam were either mobile phones or computer chips. According to H M Revenue & Customs, they have lost over £10 Billion in VAT revenue. One- nil to the fraudsters.
H M Revenue & Customs initially attempted to stop the fraud by either refusing to repay legitimate businesses VAT incurred on goods received from ‘bogus traders’ or make the legitimate exporter account for VAT retrospectively on goods leaving the UK (the subject of the Teleos Plc case). Both attacks have largely failed. H M Revenue & Customs have now turned to legislation and from 1 June 2007 recipients of mobile phones and computer chips with a value over £5,000 have to reverse charge themselves the value of the VAT on supplies they receive. In effect the legitimate customer accounts to H M Revenue & Customs for the VAT on the supply to it. One all.
Unfortunately, the legislation has not stopped the resourceful fraudster. They are now supplying other small but high value goods as a substitute, for example, pharmaceutical products. Two-one to the fraudsters.
What has H M Revenue & Customs reaction been to this latest development? When “carousel frauds” were first detected, H M Revenue & Customs set up the Missing Trader Intra-Community Fraud (“MTIC”) team to investigate this type of fraud. They have been tasked to root out this latest trend in the fraud and are focusing on the wider import and export business community.
So what will the MTIC team do? For suppliers supplying goods to overseas customers, H M Revenue will force legitimate suppliers to account for VAT on their supplies to overseas customers. Where they can demonstrate that either the paperwork evidencing that the goods have left the UK is not in order or if unknowingly you supply a fraudster, H M Revenue & Customs will try and link you to the fraud. In either instance what is going to happen is you, the legitimate trader, will be punished by being forced to account for VAT on the supply. For customers receiving goods from a fraudster, H M Revenue & Customs are going to refuse input tax claims on goods received because they will argue that you had not taken sufficient steps to confirm that the supply was legitimate and that the supplier would account for VAT on its supply. For many businesses caught up in the original carousel frauds, it has meant large amounts of VAT being withheld or having to pay over large sums to H M Revenue & Customs. It has taken a couple of years to have the money released, which is a huge cash flow burden.
As an exporter what can you do? At the very least you need to review and more than likely over haul your export procedures to ensure that you have the quality of evidence for goods delivered to an address outside the UK and that you have checked the supplier is not involved in VAT evasion.
So what can the eventual customer do? You will need to implement procedures that ensure supplies are received only from legitimate suppliers not involved in VAT evasion. It will not be sufficient just to check they are a legitimate business at the time a supplier first starts supplying the business.. It will mean regular ongoing checks on the authenticity of a supplier .
In essence, the standard of proof for imported and exported goods from legitimate suppliers has risen significantly as H M Revenue & Customs try to root out this fraud and stem the huge loss of revenue.
Morley and Scott have the VAT expertise to determine whether your business’ export/import controls and procedures are sufficiently rigorous to protect you. We can also advise on any changes that may be necessary to protect your business should H M Revenue decide to investigate your company’s export/import procedures while they try to identify “carousel fraudsters”. It may be you have already been approached by H M Revenue on this issue in which case we are also able to assist you.
For more information about these services, or for a non-obligatory quote, contact:
David West on 0207 465 1916 or 01489 566700.
