VATF23300 - What is VAT fraud?: Examples of different types of VAT fraud: Missing Trader Intra-Community (MTIC) fraud
As the name suggests, MTIC fraud contains two elements: a missing trader and an intra-community supply. There are two types of MTIC fraud - acquisition and carousel - as well as one variant - contra trading.
Acquisition fraud
Acquisition fraud is a commodity based fraud in which standard-rated goods or services are purchased zero-rated for VAT purposes from a supplier based in another EU Member State and sold in the UK for domestic consumption. The importer, who is known as the ‘acquirer’, subsequently fails to account for the VAT due on the standard-rated taxable supply to its UK customer(s).
The attached diagram (Word 36KB) sets out how an acquisition fraud transaction chain might look.
Carousel fraud
Carousel fraud is a financial fraud that is an abuse of the VAT system resulting in the fraudulent extraction of revenue from the UK treasury. It may involve any type of standard-rated goods or services. As with acquisition fraud, goods or services are acquired zero-rated from the EU, with the acquirer then going missing without accounting for the VAT due on the onward supply. However, the goods or services do not become available in the UK for consumption, but are sold through a series of companies in the UK and then exported or dispatched, prompting a repayment from HMRC to the exporter/dispatcher. This process can be repeated over and over again using the same goods or commodities. When this happens it is called “carousel fraud”.
The attached diagram (Word 42KB) sets out how a broker/carousel fraud transaction chain might look.
Contra trading
In order to hinder the detection of MTIC fraud, fraudsters often attempt to complicate it. One such way is through the use of ‘contra trading’.
The term ‘contra trader’ refers to a UK taxable person that participates in two separate types of transaction chain during the same VAT period, where the output tax from one chain is designed to off-set the input tax incurred on the other chain. The two types of transaction chains are:
- ‘tax loss chains’, where the taxable person incurs input tax on UK purchases and makes zero-rated supplies of those goods to customers in other EU Member States; and
- ‘contra chains’, where the same taxable person typically acquires goods from another EU Member State and sells them on in the UK, acting as an acquirer and generating an output tax liability from the onward UK sale.
The tax loss chains will trace back to a defaulting acquirer, or occasionally to another UK contra trader (where this occurs it is known as a ‘double’ or ‘multiple’ contra scheme). There will usually be no tax loss specifically within the contra chains for the simple reason that the contra trader is acting as the acquirer (but see VATF53100) and will have input tax to off-set against its output tax liability.
The attached diagram (Word 46KB) explains how a simple MTIC fraud contra scheme transaction chain works.
If you discover a taxable person who you suspect to be part of an MTIC fraud you should contact the VAT Fraud Team (VATF12100).
