VAT FRAUD ON CARBON CREDITS

Written 14th May 2014 by Olliers Solicitors

Carbon credits are licences to emit carbon dioxide or “permits to pollute” – and are seen as a vital weapon in the battle against climate change.

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.

VAT Fraud

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.

HMRC

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

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