Taxman devises rules for carousel fraud

The taxman has come up with a new ‘methodology’ to determine whether traders
caught up in carousel fraud chains may have had ‘knowledge or means of
knowledge’ of the fraudulent transactions within the chain.

The government has been desperately struggling to contain the damage from
carousel fraud, with increasing estimates of the possible impact emerging.

The government lost its case against Bond House and other parties in January
of this year, alleging that other participants in trading chains that had
involved a fraud at some stage could not reclaim VAT.

The court ruled that such traders should receive VAT payments, but only where
they had not had ‘knowledge or means of knowledge’ of the frauds.

HM Revenue & Customs’ annual report, which came out last week, said:
‘Following a European Court of Justice (ECJ) decision in January 2006 we have
developed a methodology for establishing whether a trader had knowledge or means
of knowledge of the fraud within their supply chain.’

It is not known what the exact methodology is, though some have speculated
that it may be based on the number of stages between a trader and the actual

Penny Hamilton, an indirect tax barrister who has handled a lot of the
claims, said she had discerned no particular methodology: ‘HMRC is paying out
but it’s taking a long time.’

Paddy Behan of Grant Thornton said that the government was being ‘very
restrictive on repayments’.

A separate case at the ECJ has also hemmed in the Bond House judgment,
experts said.

HMRC said: ‘This latest ruling strengthens HMRC’s position in verifying
suspect VAT repayment claims, and denying the repayment where there is objective
evidence that the trader concerned knew or should have known.’

To read the report, click

Related reading

HMRC banknotes