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At the moment, fraud perpetrated on Her Majesty's Revenue and Customs (HMRC) is having a severe impact, not only on the government's trade figures, but also on innocent individuals and businesses who, along the way, have become unwittingly involved in a much larger criminal scheme. A particular type of high value fraud, more commonly known as the Carousel fraud or the MTIC fraud (Missing Trader Intra Community), is particularly prevalent at the moment and is causing the tax authorities particular problems. Surprisingly, it is the tax rules that make the fraud so easy.
How The Frauds Are Perpetrated
These frauds are perpetrated when goods are exported from one EU country to another, the importer does not have to pay VAT, but VAT is charged as soon as the importer sells those goods domestically. The VAT collected in such a transaction should be handed over to the HMRC. However, the dishonest importer disappears with the money, thereby committing the fraud.
On a more sophisticated level, the goods that are imported are put through a series of transactions where the VAT generated is effectively stolen. The carousel fraud is completed when those goods, which are very often mobile phones, are exported back to the EU. The criminal collects the VAT, which can run into hundreds of thousands of pounds.
Of course, there are many hundreds of thousands of similar transactions that take place every year that are completely legitimate and lawful. However, the tax authorities do not appear to be too concerned with distinguishing between the fraudster and the lawful trader.
In reality this means that even the slightest suspicion by the HMRC that a business has been involved in this type of fraud can result in the business being subjected to a dawn raid, its directors and employees being arrested, accounts frozen by the use of restraint or freezing orders and a trip to the local police station for an interview under caution.
The disruption does not stop there, even when the HMRC acknowledges that there is no criminal involvement, VAT refunds are not made, thereby having a further crippling effect on the cash flow and budgets of the innocent business. Amazingly, the threshold for suspicion is exceptionally low, for example, starting a new business in the mobile phone or high tech gadgetry industry appears to be enough, or if sales grow exponentially over a short period of time. Even well established businesses with a relatively good working relationship with the tax authorities are not immune from this type of treatment.
Although the HMRC has been the subject of much criticism and public pressure to mend their way, the early indications are that they will continue with their draconian methods without regard to the consequences of their actions or the numbers of innocent casualties they produce along the way.
Partner and Head of Department
Business Crime, Regulation & Driving Offences