HMRC’s zero-rated carbon VAT could create £50m revenue hole

The fight against carbon tax fraud could see HM Revenue & Customs lose up
to £50m in lost tax revenue.

The Treasury reduced the carbon trading VAT rate to zero in July to prevent
fraud ­ but the result could be the department losing millions in cashflow,
according to experts.

‘HMRC normally has a cash flow benefit and it could be difficult for them not
to have cash going through their books,’ said Frank Sangster, environmental tax
partner at KPMG. Companies are likely to welcome the move, he added.

‘Businesses have previously been thinking how to manage their VAT through
their books and now are happy with the cash flow,’ he said.

There was approximately 3.9bn tonnes of carbon traded on the European
Emissions Trading Scheme in 2008 according to the department for energy and
climate change. Historically, the UK is responsible for about 7% of that market
with carbon costing an average £15 (£13) per tonne.

A Treasury spokesman told Accountancy Age the amount of fraud ‘wasn’t huge’
but that it was, ‘worrying that it was escalating’.

HMRC has made nine arrests swooping on an organised crime gang in connection
with VAT carbon trading fraud.

As yet there have been no charges but HMRC predicts the fraud is worth £38m.

The European Commission is likely to make a decision on a unified VAT policy for
member states trading in carbon later this year.

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