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HMRC internal manual

VAT Fraud

What to consider prior to determining whether to use an intervention: matters to consider when looking at particular types of taxable person or activity: conduit traders: types of conduit trading

Goods traded in the UK prior to export - (e.g. UK importer/acquirer supplies UK buffer, who supplies UK exporter)

The goods are sold between UK entities. In some instances there are one or more buffer traders between the UK acquirer and the UK exporter/dispatcher. In other cases, goods are sold directly by the UK acquirer to the UK exporter/dispatcher. If the goods involved are CPUs or mobile phones then VAT should be accounted for under the reverse charge, subject to the de minimis limit (the reverse charge does not apply where the VAT exclusive value of the supply is below £5,000). For further information on the reverse charge see VATF44200.

The goods will then be sold on to either a conduit trader or a defaulter in another EU Member State. Somewhere later on in the chain there will be a fraudulent default in another Member State.

Goods enter the UK and are then supplied directly to a trader in another EU Member State

This is a variation where the goods are acquired or imported into the UK but are not supplied between UK traders. The UK conduit trader accounts for and reclaims acquisition tax or import VAT plus any VAT incurred on UK overhead expenses. The goods are then dispatched to either a conduit trader or defaulter in another EU Member State.

Goods imported and then delivered to another members state under Customs Procedure Code (CPC) 420000

A UK trader imports goods from outside the EU. The goods either enter the UK to be immediately delivered to a trader in another Member State or they are directly delivered to another Member State for onward sale to yet another EU trader. Either way the UK trader uses Customs Procedure Code (CPC) 420000 to declare that the EU trader which receives the goods will account for VAT on their acquisition. However this trader (the UK trader’s customer) will go missing and no VAT will be accounted for.

Acquisitions - where the goods do not enter the UK

A UK trader acquires goods from a supplier in another Member State for delivery directly to a missing trader based in a third Member State. The UK trader will quote their UK VAT registration number so that the supply to them will be zero-rated in the supplier’s Member State, and may then account for acquisition tax on their UK VAT return, which they will then seek to reclaim as input tax. In this example the goods never enter the UK so there is no input tax relating to a UK supply and no zero rated dispatch. If the transactions are connected with fraud then, in these circumstances, the possible interventions HMRC can make are more limited compared with the examples cited in the sections above.