VAT FRAUD ON CARBON CREDITS

They are issued to companies that emit CO2 such as power stations, electricity companies and so on. They can be traded privately, through a broker or through exchanges, the European Climate Exchange, (ECX) being the largest.

In 2008 the market was worth almost £80 billion. However, there are growing concerns that the UK has become a major target for VAT fraudsters, which has led to a swift response from the Government to ensure that the integrity of the EU Emissions Trading Scheme is not undermined by VAT fraudsters.

VAT MTIC (Missing Trader Intra Community) fraud occurs when VAT standard rated goods are traded free of VAT throughout the European union. This is because although VAT is due in the country in which the customer belongs VAT can be accounted for and simultaneously reclaimed by the customer. The fraud takes place if the VAT is charged on the actual domestic supply and the supplier disappears without accounting for the VAT due.

Nationally, few firms, if any, have been involved in defending as many HMRC prosecutions in recent years as Olliers. The largest of our cases have tended to involve mobile phone trading and computer chips.

Suspicions first arose in June when the French Budget Ministry made permits VAT exempt after it was rumoured that a fraud was planned against environmental trading exchange BlueNext. In the same month similar measures were introduced in the Netherlands.

From midnight on the 30th July 2009 suppliers to the emissions allowances in the UK became subject to the zero rate of VAT.

On the 19th August 2009 7 people were arrested by HMRC investigators looking into a £38 million VAT fraud involving carbon credits.

So from the Treasury’s point of view, action has been taken to prevent this sort of fraud continuing and from HMRC’s perspective, the investigations are now underway and one can only assume further arrests and, in due course, further prosecutions will follow.

What’s more it’s not just the missing trader who is at risk. The end user who reclaims VAT from the tax man is also at risk as HMRC may require the innocent party to prove that it took all reasonable care to ensure that it was dealing with a bona fide trading company. Failure to show reasonable care may lead to the withholding of VAT.

Matthew Claughton is the Managing Partner of Fraud Specialist Olliers Solicitors, Castlefield Chambers, 11 Duke Street, Manchester M3 4NF telephone 0161 834 1515 www.olliers.com

Notable cases

2011:R –v- B, Liverpool Crown Court, acquittal of defendant in multi-million pound class A drugs conspiracy.
2011:R –v- B, Northampton Crown Court, Olliers act for Company Director in multi-million MTIC fraud.
2011:R v S,York Crown Court instructed by accountant alleged to have conspired to defraud HMRC.
2011:R –v- B, York Crown Court, representation of defendant facing allegation of conspiracy to steal from department for Food and Rural Affairs.
2011: R –v- B, Manchester Crown Court, acquittal of client on murder allegation.
2010:R –v- T, Bradford Crown Court. acquittal of client in conspiracy to supply Class B.
2011:R-v-E, Manchester Crown Court. acquittal of client in multi-handed local council fraud.
2011:R –v- F, Manchester Crown Court, Company Director acquitted in multi-million pound alcohol diversion fraud.
2011 : R –v- G, Kingston Crown Court, representation of Company Director in connection with £20million MTIC fraud.
2011:R –v- P, Birmingham Crown Court, Olliers instructed by defendant alleged to have been involved in largest ever attempt to import Class A drugs into the UK.
2011:R –v- J, Manchester Crown Court, representation of financial advisor facing allegation of conspiracy to commit fraud during the course of a buy to let business.
2011:R –v- B, Mold Crown Court, Olliers act for charity co-ordinator facing allegations of misappropriation of funds received from Welsh Government Assembly.
2011: R –v- B, Southwark Crown Court, representation of Director of a potato company facing bribery allegations involving major supermarket.
2011:Olliers instructed by former Managing Director plc in connection with SFO investigation into collapse of business with bank debts of £75million.
2011: R –v- C, Southwark Crown Court, representation of former solicitor accused of conspiring to defraud Building Society of £500,00.00.
2010: R –v- S, Manchester Crown Court, Acquittal of defendant in Facebook Juror Case, multi-million pound drugs conspiracy.
2011: R –v- A, Kingston Crown Court, Olliers act for a CEO of Dubai company alleged to have been involved in multi-million pound money laundering offences
2010:R –v- G, Mold Crown Court, Company Director acquitted following 5 week Trading Standards Timeshare prosecution.