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Scams steal £8.4bn from taxpayer Scams steal £8.4bn from taxpayer
(about 2 hours later)
British taxpayers have lost a "catastrophic" £8.4bn to VAT fraudsters in 12 months, according to the results of a report obtained by Panorama.British taxpayers have lost a "catastrophic" £8.4bn to VAT fraudsters in 12 months, according to the results of a report obtained by Panorama.
The figures claim that the UK lost five times more money to VAT cheats than any other EU country between June 2005 and June 2006. The figures claim that the UK lost five times more money to VAT cheats than any other European Union (EU) country between June 2005 and June 2006.
The estimates from a Belgian taskforce created to fight fraud are much higher than the last published UK estimates.The estimates from a Belgian taskforce created to fight fraud are much higher than the last published UK estimates.
But the UK government said it did not recognise the figures in the report. Britain said it did not recognise the figures in the Belgian report.
The government's own figures put VAT fraud losses at as much as £1.9bn for 2004/05. "We cannot comment on the substance of this report and we do not recognise the figures that are set out for the UK," a Treasury spokesman said.
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Chancellor Gordon Brown's 2005/06 estimates are not due until the publication of his pre-budget report later this year. The government's own figures put VAT fraud losses at £1.9bn for 2004/05. Estimates for 2005/06 are not expected until the Chancellor's pre-Budget report is published later this year.
Accurate estimate Huge losses
The Belgian figures come from a taskforce which includes government ministers and is called Ondersteuningscel in Dutch or Cellule de Soutien in French. The higher £8bn Belgian estimate is based on figures from Eurocanet - a project sponsored by the European Commission using figures from the police and other groups.
STOLEN VAT JUNE 2005/6 UK 12.6bn euros (£8.4bn)Spain 2.6bn euros (£1.7bn)Italy 2.3bn euros (£1.5bn)Germany 1.9bn euros (£1.3bn)France 1.5bn euros (£1bn) Source: EurocanetSTOLEN VAT JUNE 2005/6 UK 12.6bn euros (£8.4bn)Spain 2.6bn euros (£1.7bn)Italy 2.3bn euros (£1.5bn)Germany 1.9bn euros (£1.3bn)France 1.5bn euros (£1bn) Source: Eurocanet
The taskforce analysed information gathered by a project sponsored by the European Commission called Eurocanet and claims that the report gives accurate estimates for VAT fraud losses across the EU. "We estimate the loss to Britain to amount to 3.7bn euros with the 'Dubai Connection' adding some 8bn euros to this figure. It's clear there are very close commercial links between Britain and Dubai," said Herve Jamar, the Belgian Secretary of State responsible for VAT.
Herve Jamar is the Belgian state secretary with responsibility for dealing with VAT fraud. He worked on the report and said Britain has a "unique problem". "Carousel fraud" involves the repeated import and export of small, high-value goods such as computer chips and mobile phones.
"We estimate the loss to Britain to amount to 3.7bn Euros with the Dubai connection adding some 8bn Euros to this figure. It's clear there are very close commercial links between Britain and Dubai. Under EU trading rules a UK company importing the goods does not have to pay VAT, instead it is charged to the British company that sells the goods on. The goods are then exported before being re-imported.
"We've made these calculations using very specific criteria, based on data we've collected and based on risk analysis. As a result, we've achieved much more realistic figures. Each time the goods go round the carousel, the VAT that should be paid to Her Majesty's Revenue and Customs (HMRC) goes missing.
"And this work was done by police who specialise in tax fraud, in collaboration with other organisations. Our approach to this is therefore very objective." 'Dubai Connection'
VAT "carousel fraud" is also called missing trader intra-community fraud (MTIC). The fraud first emerged in the mid-1990s but has exploded in the UK over the past year as criminals exploit what legal authorities call the "Dubai Connection".
It involves the repeated import and export of small, high value goods such as computer chips and mobile phones. This involves exporting the goods to Dubai before sending them back into Europe and round the carousel again.
Under European trading rules a UK company importing the goods does not have to pay VAT but charges it to the next British company it sells the goods on to.
The goods are then exported before being re-imported.
WHAT IS CAROUSEL FRAUD? Small high-value goods, such as mobile phones, are imported free of VAT from EU countries and sold with 17.5% tax added in the UK. Instead of handing the VAT to the Government, the importing company run by criminals is shut down and the cash is kept by the importers. This loss of tax is often compounded when the new owners of the goods export them again and can legally reclaim the VAT they paid. Goods go round in a "carousel" via bogus supply chains within and beyond the EU because they are repeatedly imported and exported.By exporting the goods to Dubai, the fraudsters break the evidential chain making the fraud harder to detect.
Each time the goods go round the carousel, the VAT that should be paid to HM Revenue and Customs (HMRC) goes missing.
The fraud first emerged in the mid-1990s but has exploded over the past year in the UK as criminals have exploited what law enforcement officials call the "Dubai Connection".
This involves exporting the goods to Dubai, which is outside the Single Market, before sending them back into the EU and round the carousel again.
By exporting the goods to Dubai, the fraudsters break the evidential chain making the fraud harder to detect.By exporting the goods to Dubai, the fraudsters break the evidential chain making the fraud harder to detect.
According to the Belgian study, almost three quarters of the tax stolen by the fraudsters in the UK between June 2005 and June 2006 involved carousel frauds using the Dubai connection. WHAT IS CAROUSEL FRAUD? Small high-value goods, such as mobile phones, are imported free of VAT from EU countries and sold with 17.5% tax added in the UK. Instead of handing the VAT to the Government, the importing company run by criminals is shut down and the cash is kept by the importers. This loss of tax is often compounded when the new owners of the goods export them again and can legally reclaim the VAT they paid. Goods go round in a "carousel" via bogus supply chains within and beyond the EU because they are repeatedly imported and exported.By exporting the goods to Dubai, the fraudsters break the evidential chain making the fraud harder to detect.
From December, a new VAT system aimed at stopping the scam will be introduced. According to Eurocanet, almost three quarters of the tax stolen by the fraudsters in the UK between June 2005 and June 2006 involved carousel frauds using the 'Dubai Connection'.
Called a "reverse charge", it means that for certain electronic goods only the final retailer will be able to levy VAT. However, the Treasury has vowed to tackle the problem through a "reverse charge" scheme, which will come into force in December.
It aims to stop the criminals stealing VAT charged on goods imported free of the tax from elsewhere in the EU. Under the new rules the last company to sell on goods like mobile phones - such as a retailer - will be responsible for paying the VAT.
A Treasury spokesperson told Panorama that fraud estimates had been published for the past five years, and would be updated in the next pre-budget report. "If it was implemented it would remove the mechanism for stealing VAT from about 95% of the goods traded in carousel frauds," Treasury Committee chairman John McFall told BBC News.
"We cannot comment on the substance of this report and we do not recognise the figures that are set out for the UK," he said. "The government, I believe, has got space in the Finance Bill to include that reverse charge."
This fraud is widely acknowledged as a problem across the EU UK Treasury A Treasury spokesman said the government was working hard to tackle the problem "through a combination of legislation, litigation and operational activity", with 1,400 HMRC officers dedicated to the task.
"However, MTIC fraud is widely acknowledged as a problem across the EU and we continue to work closely with our European partners to counter it." Recently, the London offices of Transworld Payment Solutions were raided in an international operation against an offshore bank involved in VAT fraud.
"More than 1,400 HMRC officers are now involved in tackling carousel fraud. HMRC sources told the BBC that the move had led to a "significant" fall in the trade in fraud during July.
"In response to the recent increase in attempted fraud, HMRC has significantly strengthened this strategy through a combination of legislation, litigation and operational activity," the spokesperson said.
"Recent operational data and trade figures show a significant reduction in the level of trading associated with MTIC fraud, and we are confident that this trend will continue, assisted by the forthcoming introduction of the reverse charge."
  • This is a website update to a Panorama film first broadcast on July 16 2006 called Do You Want To Be A Millionaire which investigated "carousel fraud" and confronted one convicted criminal, "Riviera" Ray Woolley. He was hiding in Switzerland having escaped from prison by hailing a taxi.
  • This is a website update to a Panorama film first broadcast on July 16 2006 called Do You Want To Be A Millionaire which investigated "carousel fraud" and confronted one convicted criminal, "Riviera" Ray Woolley. He was hiding in Switzerland having escaped from prison by hailing a taxi.
    • Find out more about Ray Woolley and watch Do you want to be a millionaire?Find out more about Ray Woolley and watch Do you want to be a millionaire?
    Are you a victim of carousel fraud? You can tell us your stories and we may contact you for a future investigation if you give us your details. Any messages sent will not be published on the website.Are you a victim of carousel fraud? You can tell us your stories and we may contact you for a future investigation if you give us your details. Any messages sent will not be published on the website.
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