How Can I Detect Carousel Fraud?

For a business to thrive, it needs to steer clear of any type of tax fraud, especially carousel fraud. If HMRC tax authorities can demonstrate that your trade was linked to fraudulent activity, huge penalties and fines will follow.

One of the many types of fraud that business owners and accounts departments should be vigilant of is carousel fraud, also known as VAT missing trader fraud, or missing trader intra-community (MTIC) fraud.

This type of fraud, in short, is the theft of value-added taxes (VAT) from a government by organised criminal gangs who take advantage of the way this tax is managed in cross-border trading (such as the European Union), where the movement of goods between jurisdictions is VAT-free.

What are the red flags for detecting VAT carousel fraud?

So, how can a business avoid inadvertently being involved in carousel fraud? The following are some of the red flags to spot when dealing with companies or individuals outside of your organisation. While not exhaustive, they should give you an idea of the factors that could point to suspicious activity:

• Businesses that have been newly established or recently incorporated and have no financial or trading history.
• Your contacts have no real knowledge of the market or product they propose to be trading in.
• Spontaneous invitations from organisations offering an easy profit on high-value/volume deals for no apparent risk.
• Payment instructions to a third party or an offshore account.Sole traders who have a history of selling wholesale “high value, low volume” trade such as mobile phones or parts for computers.
• Unsecured loads with suspicious interest rates and terms.
• Instructions to pay less than the full price to the supplier.
• Established companies who have recently been taken over by new owners despite having no experience in the industry.
• Businesses that sell goods from residential addresses serviced offices and short-term lease accommodation.

How can I protect my business against VAT carousel fraud?

By conducting Due Diligence and Know Your Customer checks, you can significantly reduce your chances of involvement with businesses carrying out carousel fraud.

Make sure that the following procedures are also routine in your business:

• Knowing your customers, services, and suppliers
• Have a clear idea where the foods or services you are offered come from a legitimate source
• Have a good understanding that the deal is genuine.
• Check that the goods or services you buy are as described
• Check the integrity of your customers and suppliers
• Check the commercial viability of the transaction

If you’ve been inadvertently involved in carousel and VAT fraud, or missing trader intra-community fraud – then you will need to seek legal help immediately. Contact our Business & Tax solicitors team for full support and advice.