MTIC VAT fraud basically works by the creation of a supply chain where, at some stage, a key player in the chain disappears. The ECJ has ruled that an input tax claim should be disallowed if the taxable person knew or ought to have known that the transaction was connected to fraudulent tax evasion. Even if the taxable person did not benefit or receive a profit due to this fraud they could still be considered as an accomplice. It is up to HMRC to prove a taxpayer had knowledge (or ought to have known) about a fraud. This would be based on objective criteria. The recent decision in Mobilx Ltd emphasises the need for a trader to consider the circumstances surrounding transactions.
