Carousel Fraud Defence and Representation

Carousel/VAT fraud is a type of missing trader fraud that exploits the way cross-border trade works within the European Union. It may also be called Missing Trader Intra Community (MTIC) fraud, and can lead to significant penalties if you are convicted. MTIC fraud still exists notwithstanding the impact of Brexit. HM Revenue & Customs (HMRC) treats it in the same way, even though the legal framework has changed. It is vital to seek legal advice at your earliest opportunity if the authorities suspect VAT fraud is taking place within your business, or if you have been placed under investigation.

If your business has been caught up in an HMRC carousel or VAT fraud investigation, the expert team at JMW can help. Carousel fraud is, by its very nature, extremely complex, and our experienced team will be happy to offer some initial advice on your situation and, if necessary, defend your business in an HMRC investigation.
To speak to a solicitor, get in touch today by calling 0345 872 6666. Alternatively, fill in our online enquiry form and we will get back to you.

How JMW Can Help

At JMW, we are able to assist with any charges associated with carousel and VAT fraud. Carousel fraud typically involves the importation of high-value technical goods, such as mobile phones, from European Union countries. These goods are initially purchased VAT-free, but are sold on by UK traders at VAT-inclusive prices. Even though the UK is no longer in the EU VAT area, goods imported from the EU are still zero‑rated at export from the EU, creating continued risk for MTIC‑style fraud chains.

The original trader, or a trader somewhere along the chain, then disappears without paying VAT to HMRC. In some situations, goods are then sold back to another EU country and the exporter reclaims VAT from HMRC.

It is very easy for honest traders to get caught up in carousel fraud, as often the perpetrators of the fraud include a number of legitimate businesses in the chain in order to avoid arousing suspicion. Traders can also find themselves under suspicion of carousel fraud purely because they have started to import high-value goods.
If your business is under suspicion, our expert team can help. We have extensive knowledge of this area of the law and a track record of success in defending people and businesses during carousel fraud investigations. Regardless of the complexity of the case, we can help you build the strongest possible defence and give you the best chance of a successful outcome, enabling you to get on with the important matter of running your business.

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Why Choose JMW?

Carousel and VAT fraud cases are very complicated and to defend them successfully you will require the help of an experienced, professional legal team. At JMW, we have an excellent track record in cases of this type and a firm understanding of what is required to find a satisfactory outcome.

It is worth remembering that as often as HMRC correctly identifies a fraudster, an innocent business may also face prosecution. If you are targeted by a HMRC investigation, the first you know of it could be your bank accounts being frozen under the terms of the Proceeds of Crime Act 2002. If you are contacted by the HMRC in relation to a carousel fraud prosecution, you should immediately contact a legal team to discuss your options.

We can represent individuals and businesses from throughout the UK, including Manchester and London, and can provide the expert guidance you need at what can be a particularly challenging time for your business.

Q

How does VAT/carousel fraud work?

A

Organised crime groups and companies involved in missing trader fraud take advantage of the EU's Value Added Tax (or VAT) rules to claim back more tax than was paid. In a typical carousel fraud scheme, a company (the "missing trader") imports goods from an EU member state without paying its VAT liability.

The missing trader sells the goods domestically, charging VAT to its customers. Instead of paying the VAT collected to the tax authority, the missing trader disappears, keeping the money, or takes advantage of EU rules about tax rebates to claim back taxes that were never paid. This may be termed carousel fraud if the goods are sold through a chain of companies and then re-exported back to another EU country to start the cycle again.

Fraudsters have historically used goods that are small and easy to transport but high value, as this maximises the VAT charged on these products while minimising the cost of shipping them between countries. Common items used in MTIC fraud include:

• Mobile phones.
• Computer chips.
• Precious metals.
• Energy products and carbon credits, in large-scale cases involving organised crime groups spread across multiple EU member states.

Unfortunately, in some cases the above process begins to expand and may eventually include companies that are not part of the scheme, which can lead to false charges of VAT fraud being levelled by HM Revenue and Customs or the national authorities in the countries involved.

Q

How can you defend a charge of carousel/VAT fraud?

A

Although carousel fraud is prosecuted as a serious organised crime, there are legal defences that can be raised, depending on your circumstances. These defences usually centre on knowledge, intention, the due diligence the business carried out in relation to suppliers or customers and the evidential burden on the prosecution. JMW approaches every case with a thorough attention to detail in examining the prosecution's evidence and highlighting mitigating circumstances during sentencing.

Common defences that may be relied upon in the right circumstances include:

Lack of knowledge or intent

Carousel fraud depends on showing that the defendant knowingly participated in a scheme to defraud HMRC. A common defence is to argue that the defendant did not know the transactions were fraudulent, acted in good faith, and relied on due diligence processes or the honesty of suppliers or accountants. If you had no reason to suspect missing trader activity within the supply chain and your knowledge of the scheme cannot be proved beyond reasonable doubt, this can serve as a defence.

Due diligence

Businesses can argue they carried out reasonable checks on suppliers and customers, such as verifying VAT registration numbers, trading history and the legitimacy of invoices. Demonstrating that robust due diligence procedures were followed can be a strong defence against both criminal charges and civil penalties. These measures go hand in hand with internal procedures designed to prevent opportunities for fraud.

Procedural challenges

If we find evidence that HMRC acted unlawfully in searches, seizures or surveillance, or that any of the prosecution’s evidence was obtained improperly, we may challenge it on procedural grounds. This is particularly relevant if the prosecution has failed to follow procedural safeguards under the Police and Criminal Evidence Act 1984 or the Criminal Procedure and Investigations Act 1996. Having evidence excluded can affect the prosecution's case and work in your defence

Honest mistake or reliance on advice

A defendant may claim they relied on professional advisers (such as accountants or tax consultants) and honestly believed they were compliant. While not always a full defence, this can act as a mitigating factor that reduces culpability.

Courts rely on case law when deciding whether a trader knew or should have known about carousel fraud, which is often decisive in both criminal and civil cases. This means that showing you were unaware of the risk of missing trader fraud or that due diligence checks raised no concerns can help you to avoid a conviction.

Q

What are the potential penalties for a VAT fraud conviction?

A

A conviction for carousel fraud can result in very severe penalties under the law in England and Wales because it is treated as a serious form of tax evasion and is often linked to organised crime. If you are convicted of this type of missing trader fraud or a related offence under the Fraud Act 2006, Criminal Law Act 1977, or Proceeds of Crime Act 2002 (POCA), there can be significant penalties.

Some VAT fraud offences carry a maximum sentence of up to 10 years’ imprisonment, and you may serve a longer sentence if you are convicted of multiple offences. In most cases, you will need to pay the VAT you owe, and HMRC can issue notices making companies and directors personally liable for unpaid VAT if they knew, or should have known, of fraudulent trading in their supply chains.

The court may also impose an unlimited fine, which is often set at a very high amount to reflect the scale of the fraudulent VAT losses. Under the Proceeds of Crime Act 2002, assets obtained through the fraud, including property, bank balances, vehicles, or other valuables, can be seized and confiscated.

A solicitor can represent you during sentencing and any POCA confiscation hearings to present your version of events and help you to avoid a sentence that is overly harsh. JMW specialises in presenting mitigating circumstances that can reduce your sentence after conviction.

Beyond the criminal penalties, there are a number of potential side effects to being found guilty of VAT fraud. Individuals involved in these schemes can be banned from holding company directorships for up to 15 years under the Company Directors Disqualification Act 1986. Businesses and individuals found guilty often face permanent loss of credibility that makes it very difficult to trade again and will be subject to increased scrutiny by tax authorities.