Missing trader fraud involves a ‘missing’ or ‘defaulting’ trader, who deliberately fails to pay the VAT due on contrived VATable supplies. Such supplies may pass through several intermediary traders before they are either sold to an end user in the UK or dispatched or exported to an overseas customer.

Such supply chains are known as ‘tax loss chains’. Some fraudsters use ‘non-tax loss chains’ alongside ‘tax loss chains’ in order to try to disguise the VAT losses as part of a scheme to defraud HMRC.

Spotting missing trader fraud is important, because if a person fails to take reasonable care and if HMRC shows that he knew, or should have known, that his transactions were connected to such fraud, then his claim to recover the input tax relating to those transactions may be rejected. In order to try to stop this fraud, the law effectively makes those who might deal with the fraudsters, responsible for taking reasonable precautions.