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: possible civil interventions
Below is a list of possible interventions to consider in cases which appear to have the hallmarks of conduit trading as per VATF36330. Officers must ensure that they consider the facts of each case and only deploy the following interventions where they are appropriate.
Denial of zero-rating for supplies to other Member States
Where the customer is not registered for VAT
Where the UK trader has supplied a trader in another EU Member State and at the time that the transactions were carried out the EU trader was not registered for VAT (e.g. the trader may have been deregistered as a missing trader) then you should consider denying the application of the zero rate to this supply. However, before doing so you should seek to establish whether or not the trader acted in good faith and took all reasonable measures to ensure that their transaction did not lead to their participation in VAT evasion (VEXP70400). If you are in any doubt over this you should consult the VAT Fraud team and/or the SI Technical team. Where appropriate an assessment should be issued for the output tax which should have been charged on this supply (VEXP90000).
You should also read VATF43200.
Where the taxable person knew or should have known that his transaction was part of a tax fraud committed by the customer, and that he had not taken every reasonable step within his power to prevent his own participation in that fraud
Zero rating can be denied in the above instance using the Mecsek principle (VATF43230).
If a conduit trader (this includes dispatchers, buffers, and acquirers) has a trading history showing that it has solely entered into transactions that are connected with fraudulent evasion of VAT then HMRC can consider deregistering the trader under the abuse principle as set out by the ECJ in Halifax, i.e. on the grounds that it has abused its right to be VAT registered. However, you must consult the VAT Fraud Team before making such a decision.
You should also read VATF44500.
When officers have established that there is an evidenced fraudulent tax loss in another Member State (Note - this is distinct from the appropriate tax authority in the OMS merely notifying us that the supply has been traced to a missing trader) then input tax claimed by UK traders in the supply chain, including the recovery of acquisition tax by the initial UK acquirer may be considered for denial under the Kittel Principle (VATF53115). This will of course be conditional on HMRC proving the connection with a fraudulent evasion of VAT and demonstrating that the trader whose input tax we intend to deny knew or should have known that its transactions were connected with that fraudulent evasion of VAT.
Officers should complete and submit the Kittel principle submission template to the VAT Fraud Team, via the Tech Team where appropriate (VATF85000).
You should also read VATF50000.
Officers must ensure that if a trader is using onward supply relief that they meet all of the conditions set out in para 2.5 of the Notice 702/7 - Import VAT relief for goods supplied onward to another country in the EC (April 2010).
Note: The relief will not apply if the trader receiving the onward supply is not registered at the time the transactions take place as this would not meet condition 2 in the table at para 2.5 of the Notice.
Applying the ECJ judgement in the case of ‘X’ and Facet BV
Where a UK trader acquires goods from a supplier in another EU Member State for delivery to a trader based in a third EU Member State, it can use its UK VAT number to obtain zero rating. If all three companies are properly VAT registered and comply with the relevant condition then they can of course use the triangulation procedure. But if not, the UK company must either register to account for acquisition tax in the third country or would become liable for irrecoverable acquisition tax in the UK.
You should also read VATF44700.