HMRC: ‘Advisers think carousel fraud is tax planning’

Some tax advisers regard carousel fraud as ‘some form of clever tax
planning’, the government has said, in the its latest provocative initiative on
the crime.

Mid-tier firms are, on HM Revenue & Customs’ insistence, to come out and
condemn the fraud this week, Accountancy Age can reveal, as the
government seeks to target professionals who may have been unwittingly
supporting the criminals.

The move follows last week’s ECJ decision not to allow HMRC to deny VAT
reclaims to companies who had been inadvertantly part of VAT chains that
involved one of the frauds, which collectively cost the UK between £1.1bn and
£1.9bn a year.

HMRC chairman David Varney wrote to the firms and institutes in December,
after the Big Four came out to criticise the fraud, which involves criminals
charging goods with VAT included, and pocketing the tax as profit before

In his letter, which HMRC released to Accountancy Age on
Friday, Varney explains that: ‘MTIC is one of the most serious attacks on the
tax system we have ever seen. It diverts into the pockets of criminals the vital
funding intended for public services. A small number of tax advisers mistakenly
see MTIC as some form of clever tax planning rather than a dishonest and
criminal exploitation of the tax system.’

It is unclear precisely which advisers have said MTIC fraud is tax planning,
and the statement is thought to have wound up many: ‘I don’t know on what basis
[David Varney] believes that to be the case,’ said one senior adviser.

In a separate statement, HMRC explained that it was working with both banks
and accountancy firms to try and cut off the criminals’ support networks:
‘Accountants may be able to help by making sure they do not deal with clients
who are part of the MTIC supply chain, and by working with clients to ensure
they do not become part of the MTIC supply chain. We are working alongside banks
to help them develop risk profiles to identify possible criminal activity.’

HMRC is thought to be particularly concerned that banks may not be doing
enough to prevent the proceeds of the crime getting out of the country.

BDO Stoy Hayward is set to come out and issue a statement this week
condemning MTIC fraud, with others set to follow.

Jeremy Newman, BDO’s managing partner, told Accountancy Age: ‘We
will be making a suitable statement some time this week. It will be broadly
similar to the statement made by the Big Four. HMRC clearly think it’s a major
issue, and we are happy to help out.’ will have more information on who will be issuing
statements later today.

Related reading