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Overview and development of missing trader fraud domestic reverse charge measures

Broadly, missing trader fraud involves a 'missing' or 'defaulting' trader deliberately failing to pay its VAT liability for taxable supplies made in the UK. Frequently, such fraud involves supplies passing through a number of intermediary traders before either being sold to a UK end user of a customer outside the UK¹.

In Bond House², a taxpayer was the unwitting participant in a missing trader fraud. In simplified terms, it bought a large quantity of computer processing 'chips' and claimed the input tax on the purchase. HMRC refused to make repayment, arguing that, taken as a whole, a chain of transactions involving fraud was not an 'economic activity' and consequently the 'VAT' incurred by the appellant was not VAT at all and could not be recovered as such.

The UK remained an EU member state at this time and the dispute reached the ECJ