VATF23550 - What is VAT fraud?: examples of different types of VAT fraud: missing trader intra-community (MTIC) fraud: contra trading

In order to hinder the detection of MTIC fraud, fraudsters often attempt to complicate it. One such way is through the use of ‘contra trading’.

The term ‘contra trader’ refers to a UK VAT registered taxable person that participates in two separate types of transaction chain during the same VAT period, where the output tax from one chain is designed to off-set the input tax incurred on the other chain. The two types of transaction chains are:

• ‘tax loss chains’, where the taxable person incurs input tax on UK purchases and makes zero-rated supplies of those goods to customers in other EU Member States or exports to customers outside the EU; and
• ‘contra chains’, where the same taxable person typically acquires goods from another EU Member State and sells them on in the UK, acting as an acquirer and generating an output tax liability from the onward UK sale.

The tax loss chains will trace back to a defaulter, or occasionally to another UK contra trader (where this occurs it is known as a ‘double’ or ‘multiple’ contra scheme). There will usually be no tax loss specifically within the contra chains for the simple reason that the contra trader is acting as the acquirer and will have input tax to off-set against its output tax liability.

The attached diagram (Word 46KB) sets out how a simple MTIC fraud contra scheme transaction chain works.