The guidance clarifies new rules, announced in April 2003, targeted specifically at dishonest and complacent companies whose fraudulent activities distort fair competition, put legitimate companies out of business and cost taxpayers around £2.75 billion in lost revenue every year.
The new rules target what is known as Missing Trader Intra-Community (MTIC) VAT fraud. Otherwise known as carousel fraud, it occurs where fraudsters obtain VAT registration to acquire goods VAT-free from other Member States. They then sell on the goods at VAT inclusive prices and disappear without paying over the VAT paid by their customers to the tax authorities.
From today, Customs will be applying two rules to businesses in the computer, mobile phone, alcohol and road fuel trade sectors:
- businesses that do not have a valid VAT invoice will not be able to claim back VAT, unless they can satisfy Customs that they have taken reasonable steps to demonstrate that their supplier was bona fide;
- where a business in the mobile phone or computer parts sector knew or had reasonable grounds to suspect that their supplier or a supplier in their chain would fail to pay VAT, they may be liable to pay the VAT themselves.
These rules will not be applied to businesses that can genuinely show that they have done everything they can to avoid becoming caught up in a fraudulent supply chain.
The onus is therefore on business to check up on their suppliers, although businesses need only take reasonable steps to do this.
The guidance establishes a presumption that a purchaser buying relevant goods for less than the "lowest open market value of the goods, or the price payable for them by any previous supplier" has reason to suspect that VAT is going unpaid. But, according to the guidance:
"If you have genuinely done everything you can to check the integrity of the supply chain, can demonstrate you have done so, have taken heed of any indications that VAT may go unpaid and have no other reason to suspect VAT would go unpaid, the joint and several liability provision will not be applied."
Nor will it be applied where unpaid VAT is not the reason for the low price of the goods in question, the supplier has a genuine bad debt problem, or has genuinely gone out of business.
