Small items of high value have always represented a major problem for HM Revenue and Customs (HMRC), since they are the favoured means by which criminals commit a simple VAT fraud. In essence, the fraud works by producing evidence that goods have been purchased or imported (which leads to a recoverable VAT charge) and then exported (so they are zero-rated on sale). The net effect is that the VAT incurred on purchase or import is recovered. Normally there is a chain of businesses involved and, at some point, one of them ‘disappears’ having not paid the VAT due. The net result is that VAT is paid out by HMRC and this is never balanced by VAT paid to HMRC. IT equipment of various sorts and mobile phones are favoured items to use in what are described as ‘missing trader’ or ‘carousel’ frauds (the latter because the same goods can go round and round in circles, being used to commit several frauds).
Needless to say, HMRC are often very picky about the evidence of exportation they will accept as valid. Recently, they brought to court a claim for zero-rating of goods which it had been claimed had been exported. The case illustrates how HMRC can create problems for businesses which appear to be innocent parties in a chain of transactions that HMRC believe to be suspect at some point in the chain, and it sounds a warning bell for businesses that export goods.
HMRC argued that the company’s evidence for export was inadequate. The VAT Tribunal agreed, partly because the company had taken no steps to make sure it was not involved in any fraudulent transactions.
The exporter appealed, arguing that the Tribunal was wrong. The Tribunal had concentrated on the company’s lack of effort to make sure the transactions were not fraudulent. The company also argued that as it held a CMR consignment notice as evidence of export and this had initially been accepted by HMRC as valid, HMRC could not later refuse to accept its validity. Furthermore, HMRC had not accused the company of fraud.
The court sided with HMRC: the Tribunal’s decision that there was inadequate evidence of export of the goods must stand. Case law held that possession of a CMR consignment notice could not be regarded as conclusive proof of export.