Carousel fraud costing HMRC up to £1.9bn

News Article - 09 June 2009
Category: Business

A common type of value-added tax (VAT) fraud is now costing the UK as much as £1.9 billion.

Missing trader intra-community fraud, known as carousel fraud, cost HM Revenue and Customs (HMRC) between £1.12 billion and £1.9 billion in the 2004-05 financial year.

Carousel fraud is a sophisticated system of manipulating the VAT system.

The fraud is centred on importers and exporters of goods such as mobile phones and computer chips, but also includes other electronic goods.

Offending firms import VAT-free items from other EU member states and then sell them on with added VAT. However, the VAT is not passed on to HMRC. The seller then simply disappears with the additional income.

Losses to HMRC are further increased when the goods are then exported out of the UK. This allows the buyer to reclaim VAT that has been paid, but never received by HMRC.

According to figures from the Office of National Statistics, almost £10 billion-worth of export trade was associated with VAT fraud during the second quarter of 2006.

That represents a 50 per cent rise from the first quarter of the year.

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