VATF23540 - What is VAT fraud?: examples of different types of VAT fraud: missing trader intra-community (MTIC) fraud: carousel fraud

Carousel fraud is like acquisition fraud (VATF23530), except that the goods or services do not end up with an end consumer. Instead they go round, usually ending up back in the UK.

An example of carousel fraud

The attached diagram (Word 37KB) shows how carousel fraud works and will assist you in understanding the following example.

• Company A, a UK VAT registered taxable person, purchases goods from an entity in another EC Member State. It sells these goods on to Company B, another UK VAT registered taxable person acting as a buffer, but does not declare or pay its VAT liability.
• Company B sells the goods to Company C, a UK VAT registered taxable person acting as a buffer, reclaiming the VAT charged to it by Company A and declaring the VAT it charges to Company C.
• Company C sells the goods to Company D, a UK VAT registered taxable person acting as a broker, reclaiming the VAT charged to it by Company B and declaring the VAT it charges to Company D.
• Company D sells the goods to an entity located in another EC Member State. It reclaims the VAT charged to it by Company C but because the sale is zero rated it declares no output tax.

The goods will now carousel through other entities in EC Member States until they are again acquired by a UK VAT registered taxable person. At this stage the above process begins again, normally with different companies but sometimes with one or more of the companies being the same.