MTIC VAT Fraud & the Knowledge Test: Expert Evidence Guide

MTIC Fraud Structure

Missing Trader Intra-Community (MTIC) fraud involves a chain of transactions where a missing trader collects VAT and disappears without paying it. HMRC denies input tax to businesses in the chain, even innocent traders, where it can demonstrate actual or constructive knowledge of the fraud connection.

The Mobilx v HMRC Knowledge Test

In Mobilx Ltd v HMRC [2010], the Court of Appeal confirmed that HMRC must prove actual or constructive knowledge before denying input tax. The test requires careful alignment of evidence with legal principles, HMRC cannot simply deny input tax because a transaction was connected to fraud; it must prove the taxpayer knew or should have known.

Due Diligence Evidence

The tax expert witness assesses whether the knowledge test is met by analysing the due diligence performed, red flags present in the transaction chain, and whether a reasonable business in the same position would have known the transactions were connected to fraud. Strong due diligence evidence combined with expert analysis has achieved cancellation of assessments exceeding £1.3 million.

Expert Witness Role

The expert provides independent analysis of the knowledge test, reviews transaction chains, assesses commercial checks performed, and produces CPR Part 35 compliant reports for FTT proceedings. Early instruction during the investigation phase can inform representations before assessments are finalised.