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It needs to be evidenced that the taxable person 鈥榢new鈥� or 鈥榟ad reasonable grounds to suspect鈥� that VAT on the supply or any previous or subsequent supply of 鈥榯hose goods鈥� would go unpaid. In these circumstances the taxable person may be held jointly and severally liable for the 鈥榥et tax鈥� unpaid in that supply chain.

鈥楾hose goods鈥� means the very same goods and not goods of the same description. For example, if a taxable person purchases 100 mobile phones from a supplier who bought them as part of an order for 1,000 mobile phones, then he may be held liable under this measure for any unpaid VAT on the 100 phones he has bought and not the 1000 phones which his supplier bought.

鈥楴et tax鈥� means the VAT charged on those goods less any input tax incurred on the purchase of those goods by the taxable person who has not paid the VAT. In Missing Trader cases, it is the defaulter鈥檚 output tax that usually remains unpaid and there is, in reality, unlikely to be any input tax to offset this because it will be the UK acquirer or importer.

Provided that a tax loss has been established, this measure can automatically apply in the circumstances where the taxable person has purchased the specified goods at less than the:

• lowest open market value of the goods; or
• price payable for them by any previous supplier.

It is for HMRC to demonstrate, to the First-tier Tribunal if necessary, that there has been a VAT fraud and that the taxable person 鈥榢new or had reasonable grounds to suspect that VAT has gone unpaid鈥�. It is accepted that HMRC must have objective evidence and we must be in a position to explain and provide evidence to show why we think a taxable person is jointly and severally liable. A taxable person is presumed to have reasonable grounds to suspect that VAT would go unpaid if one of the tests above is met. In practice the First-tier Tribunal is unlikely to be satisfied by these alone. In each case, therefore, we must also build up as full an evidential picture as possible to demonstrate that a taxable person knew or had reasonable grounds to suspect that VAT would go unpaid.

To establish whether the taxable person 鈥榢new or had reasonable grounds to suspect that VAT has gone unpaid鈥�, you will need to gather a range of evidence relating:

1. to the taxable person鈥檚 state of knowledge at the time the transactions took place, and
2. to the taxable person鈥檚 conduct, which will include relevant information about the taxable person鈥檚 business practices and pattern of trade.

The evidence required to demonstrate this is very similar to the evidence required to demonstrate that the trader 鈥榢new or should have known鈥� that its transactions were connected with VAT fraud (the Kittel principle, which is dealt with in section VATF50000 of the VAT Fraud guidance manual).

(NB: Sections JSL4310, JSL4320, JSL4330 and JSL4340 are examples to illustrate the type of evidence required, and should not be regarded as exhaustive.)