Key facts
- MTIC (carousel) fraud exploits cross-border VAT rules to steal refunds.
- HMRC can hold you liable if you “knew or should have known” about fraud in your supply chain.
- Businesses must carry out due diligence checks on suppliers and customers.
- The domestic reverse charge was introduced to combat MTIC fraud in certain sectors.
What Is MTIC Fraud?
MTIC (Missing Trader Intra-Community) fraud — also called carousel fraud — works by exploiting the VAT treatment of cross-border goods transactions. A “missing trader” imports goods VAT-free, sells them with VAT, then disappears without paying the VAT to HMRC.[2]
Your Risk
HMRC can refuse your input VAT claim if they believe you knew or should have known that your transaction was connected to fraud — even if you didn’t commit the fraud yourself.[1]
Due Diligence Obligations
To protect yourself:[3]
- Verify your suppliers’ and customers’ VAT numbers
- Be suspicious of unusually low prices
- Check the commercial logic of the transaction
- Keep records of all due diligence checks performed
- Be wary of back-to-back transactions or deals with no economic substance
HMRC Countermeasures
- Domestic reverse charge for high-risk sectors (construction, mobile phones)
- Joint and several liability for traders in the supply chain
- Extended verification of large VAT repayment claims
Frequently Asked Questions
What is MTIC or carousel fraud?
MTIC (Missing Trader Intra-Community) fraud is a type of VAT fraud where a trader imports goods VAT-free, sells them with VAT charged to the buyer, and then disappears without paying the VAT to HMRC.
Can HMRC hold me liable for VAT fraud in my supply chain?
Yes. HMRC can refuse your input VAT claim if they believe you knew or should have known that your transaction was connected to VAT fraud, even if you did not commit the fraud yourself.
What due diligence should I do to avoid VAT fraud?
Verify suppliers’ and customers’ VAT numbers, be suspicious of unusually low prices, check the commercial logic of deals, keep records of all checks, and be wary of back-to-back transactions with no economic substance.
Further Reading
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Sources
- Check your supply chain for VAT fraud — GOV.UK
- VAT fraud: carousel and MTIC fraud — GOV.UK
- Due diligence checks — GOV.UK