Carousel curb 'could cost honest firms'

Honest businesses in the energy sector could be targeted by the VAT man in a crackdown on missing trader intra-community (MTIC) fraud, also known as carousel fraud, legal experts have warned.

HMRC has sent questionnaires and conducted interviews with firms and financial institutions within the oil and gas industry that trade in carbon credits. McGrigors, a law practice specialising in tax disputes, believes lawfully acting companies could face additional VAT bills running into tens of millions of pounds as the Revenue attempts to hunt down MTIC cheats who acted before carbon credits became temporarily zero-rated in July 2009.

If the department cannot identify the fraudsters, it will try to collect VAT from other organisations in the supply chain, claimed McGrigors, adding that the taxman will seek to recover from a firm any or all of the VAT formerly reclaimed on the purchase of carbon credits, if inspectors conclude that the business could have discovered, through extensive due diligence or reasonable enquiry, that it was trading in the same supply chain as a fraudster.

Partner David Anderson said: ‘This is likely to result in substantial VAT bills for innocent businesses caught up in the fraud, and possibly even fines. Boutique carbon trading outfits could face severe financial hardship or even bankruptcy.

‘Traders caught in lengthy supply chain frauds, despite the majority having undertaken reasonable checks, are most at risk.’

Mr Anderson’s remarks followed news that European prosecutors are investigating a suspected £4 billion MTIC scam involving carbon trading, where a company buys goods from another country and sells them domestically without paying the tax charged on the transaction.

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