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VAT rise 'may cause surge in carousel fraud'

Legal experts warn of energy industry scams

This week’s increase in the standard rate of VAT could lead to a surge in ‘big ticket’ carousel fraud in the UK energy industry, tax investigations specialist McGrigors has warned.

The law firm claimed that the rise of 2.5 percentage points in VAT, which Chancellor George Osborne has announced will be permanent, has increased the risk of high-profit scams centred on gas and power trading, a problem first highlighted last July by HMRC.

With the exception of a spate carbon trading-related swindles in 2008/09, carousel, or missing trader intra-community (MTIC), fraud – in which a trader buys goods VAT-free from another country and then sells them domestically without paying the VAT due to the Revenue – has been on the wane in recent times.

This is partly as a result of much criminal activity moving to continental Europe to take advantage of their higher levels of VAT, according to McGrigors partner Jason Collins.

He said the 4 January increase from 17.5% to 20% has put the UK’s rate of sales tax above many European countries’, including those of Germany and the Netherlands (both 19%), and the change is likely to make the country’s energy market an attractive arena for fraud.

MTIC scams can leave innocent businesses facing VAT bills running into the tens of millions, claimed Mr Collins, saying the Revenue will use powers to recover the tax if the department concludes that an innocent firm could have discovered, through extensive due diligence or reasonable enquiry, that it was trading in the same supply chain as a fraudster.

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