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Big four pledge to fight VAT fraud

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8th Dec 2005
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The 'big four' accountancy firms have pledged to help HMRC in the fight against Missing Trader Intra Community (MITC) fraud - often knows as "carousel fraud" - which costs the UK over £1 billion a year in lost VAT receipts.

MITC fraud exploits the cross-border supply chain for small, high-volume goods such as computer chips and mobile phones to create fraudulent repayments of VAT and tax.

Following growing cooperation with HMRC, Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers have now signed a memorandum outlining four key measures they will take to combat MITC fraud:

# To advise clients to whom this would be relevant of the commercial risks that they run if they trade with a MTIC fraudster, eg danger of not recovering "VAT" not accounted for by the fraudster, risk of becoming the inadvertent subject of an HMRC fraud investigation, reputational risk etc;

# To advise clients to whom this would be relevant of the characteristics of the promoters of such frauds through the medium of email alerts, seminars and individual meetings, as appropriate and starting before 31 December 2005

# To encourage clients who could be affected to issue their own messages and alerts internally to heighten awareness of this problem

# To remind employees, starting before 31 December 2005, to notify the appropriate Risk Management Partners if they suspect MTIC activity on any client's affairs, as a part of normal new client and work acceptance procedures.

The latest figures from the Office for National Statistics show that in 2004-05, MITC fraud cost the UK between £1.12 billion and £1.9 billion in lost revenue. It is also a serious problem for other EU member states.

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By User deleted
09th Dec 2005 17:11

MTIC Fraud
Dave Brown has recommended a solution which would work if implemented. The problem with this is that the fraudsters would immediately start to trade in a different product such as Mont Blanc pens, designer clothing and jewellery - all of which have been used to commit MTIC fraud. Unfortunately HMRC can't introduce a scheme for every product.A "tax free ring" for non-retail sales such as existed in Purchase Tax days would not stamp out fraud but would limit the extent to those at the beginning and end of a chain. However this is probably a non starter as it breaches the 6th VAT Directive.

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By AnonymousUser
09th Dec 2005 14:13

A failure of imagination...?
It seems to me that the Big Four are lacking in imagination, as are the Treasury and HMRC. Surely the answer is to set up with Customs an additional account for each trader in goods like these. Then let the buyer pay the VAT element straight to Customs on each purchase, which is credited to the seller's account. The seller then accounts for output tax by Customs taking the output tax from the account and repaying any input tax to the seller.

If the traders were all forced to do it that way, Customs would not lose any tax because Step 1 of the procedure would put it in their hands. It would stop the fraud in its tracks. OK, it would need amendments to HMRC's computers, but that's not an impossible notion, is it?

I wonder if HMRC pay for these ideas. My fee is 1% of 1% of the tax saved. I would be well satisfied with that.

Remember - you read it here first.

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David Winch
By David Winch
08th Dec 2005 22:50

HM R & C moves on MTIC fraud

It has recently been reported that H M R & C have been 'leaning' on banks to close accounts of mobile phone companies.

See press report UK Customs denies pressing banks to pull out of mobile sector.

Certainly Customs would be happy to disrupt the activities of suspected fraudsters and these moves could be seen as a way for Customs to have maximum effect in return for minimum effort on their part.

Of course where accountants have suspicions of VAT fraud they are obliged to report them, internally to the firm's MLRO who will report externally to NCIS, under section 330 Proceeds of Crime Act 2002.

If you are an MLRO you can get confidential one-to-one email support, information and NewsAlerts from my website www.mlrosupport.co.uk.

David
[email protected]

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