VATF36340 - 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 outside the UK
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).
Deregistration
If a conduit trader (this includes exporters/dispatchers, buffers, and importers/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 Ablessio principle, i.e. on the grounds that its VAT registration is being used for fraudulent or abusive purposes . However, you must consult the VAT Serious Non-Compliance & Fraud Team before making such a decision.
Kittel
When officers have established that there is an evidenced fraudulent tax loss outside the UK (Note - this is distinct from the appropriate overseas tax authority 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/import tax by the initial UK importer/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 Serious Non-Compliance & Fraud Team, via the FIS Tech Team where appropriate (VATF85000).
You should also read VATF50000.