Input tax recovery can be denied by HMRC where a business 'knew or should have known' that the purchases it made were connected with the fraudulent evasion of VAT.
"Another risk to businesses purchasing GOs is the potential for fraudulent companies which have subsequently passed into liquidation to bring a civil claim against them for 'dishonest assistance' in defrauding HMRC. The sums claimed tend to be broadly equivalent to the VAT amount that the fraudulent company defaulted on paying to HMRC, potentially doubling the financial exposure to the business. In these circumstances, dishonesty can mean 'turning a blind eye'," Clara Boyd said.
Missing trader fraud began with physical goods such as mobile phones and computer chips, but in recent years it has spread to the financial services and energy sectors. The current allegations in respect of GO trading bear many similarities to the VAT fraud that affected the carbon credit market in 2009, which reportedly resulted in billions of pounds in lost VAT.
"The volume and value of the transactions can very quickly create significant VAT exposures for businesses inadvertently caught up in a VAT fraud. Businesses involved in the trading of GOs should therefore carry out a risk assessment of their potential exposure to missing trader fraud and review their due diligence procedures as a matter of urgency," Walsh said.
Potentially exposed businesses will need to put in place clear policies and processes, provide training and guidance for staff, and ensure that robust reporting lines and record keeping are maintained, he said. This is to ensure the business is best placed to identify and respond to any warning signs; and is able to demonstrate to HMRC that they have taken reasonable steps to verify the integrity of their supply chains. Such action will also assist in defending against any allegations of dishonest assistance brought by any liquidated companies.