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HMRC moves to clear the air on carousel fraud

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23rd Jan 2006
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Nicola Ross-MartinBy Nichola Ross Martin
In its battle against the £1.5 billion a year Missing Trader Inter Community (MTIC) Fraud, and in the wake of its defeat in the Bond House "carousel" fraud, HMRC are now asking medium firms to work with them in an effort to combat the problem. In December 2005, the 'big four' firm announced four steps** that they would take to address the problem.

David Varney, Chairman of HMRC said in a letter to firms:

'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. The Big Four's announcement is an important step in getting everyone to support and work with HMRC in tackling this most serious criminal activity.'

'I am now writing to ask that your organisation makes a public statement and raises awareness among members in support of our efforts to put an end to MTIC. You can achieve a lot by advising your members of the significant role they can play by refusing to represent those involved in MTIC and by helping the overwhelming majority of honest traders to understand the characteristics of these frauds and those who promote them so that they themselves do not get involved.'

His comments on 'clever tax planning' seem to have upset some firms, which is unfortunate. It is fair to say that most realise that pocketing VAT that is due to the Treasury counts as tax evasion, is not legitimate tax avoidance. Nevertheless the brains behind MTIC fraud will necessarily be experts in VAT.

HMRC released a press release as a result of the misunderstanding:

"MTIC fraud is HMRC's top VAT fraud priority, with over 500 staff deployed on the MTIC strategy, which has been in place for five years and is being strengthened further. New operational initiatives are under way and the Government is committed to ensuring that HMRC continues to have appropriate tools to tackle fraud effectively - and will not hesitate to bring forward legislative measures as and when necessary.'

"Our communication with financial professionals is one part of this strategy. We welcome the Big Four's four steps and we expect others to take a similarly responsible position and to work with us so that together we can tackle this serious criminal fraud. 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 honest clients to ensure they do not become involved. Meanwhile, we are working alongside banks to help them develop risk profiles to identify possible criminal activity."

**
The Four steps, as announced by Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, PricewaterhouseCoopers LLP are:

i) advise such of our clients to whom this would be relevant of the commercial risks that they run if they trade with a MTIC fraudster, e.g. 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;

ii) advise such of our 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;

iii) encourage those of our clients who could be affected to issue their own messages and alerts internally to heighten awareness of this problem;

iv) and as a part of our normal new client and work acceptance procedures, we will remind our people, starting again before 31 December 2005, to notify the appropriate Risk Management Partners if they suspect MTIC activity on any client's affairs. This process will operate alongside our existing legal obligations under the Proceeds of Crime Act and the making of any suspicion reports through our MLRO.

http://www.rossmartin.co.uk

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Replies (7)

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By mikewhit
25th Jan 2006 18:36

HMRC attitude
Well, since HM Customs & Excise amended the wording in their VAT handbook in 2004, to remove the statement that tax planning was lawful, all planning is presumably now criminal:
2 Administration of VAT
2.3 Tax avoidance

Delete the first two sentences from "Tax avoidance is [not illegal] ..." up to "... tax simplification measures" and replace with "Tax avoidance is the use of contrived arrangements or structures to achieve a tax advantage - an increase in tax recovery, a reduction in the tax due or a tax deferral - contrary to the purpose and spirit of the legislation. Tax avoidance puts at risk Government revenues. It can also give a business an unfair advantage over others and threaten tax simplification measures."

("VAT Guide - Notice 700 April 2002" and associated "Update 2 to Notice
700 - Feb 2004")

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By User deleted
25th Jan 2006 13:17

Glad to see the Institutes' responses
In accountancy age:
http://www.accountancyage.com/accountancyage/news/2149130/institutes-slam-taxman-slur
it is reported that the Institutes have condemned the attitude of the Revenue, or more specifically David Varney, on this.

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By User deleted
24th Jan 2006 17:51

Name the tax advisors involved
Perhaps HMRC could name the tax advisors of MTIC fraud cases for everyone's benefit ?

This way only those with poor client ID procedures would be labelled appropriately rather than all advisors.

I'm all for punishing the guilty (and very severely indeed), the problem is HMRC's scattergun approach harms the innocent as well as the guilty.

And I don't like this idea that MTIC fraud is considered to be tax planning / avoidance as opposed to the fraud that it is.

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By User deleted
25th Jan 2006 18:18

Storm in a tea cup?
It seems highly unlikly that any of these firms will be able to do anything to prevent the MTIC problem anyhow.

I was going to head my article "Revenue accuse accountants of conspiracy to de-fraud: Do we look bovvered?"

The bigger picture is that we all suffer from HMRC's inability to prevent these sort of international scams.

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By User deleted
23rd Jan 2006 15:39

Not exactly an apology
Was that clarification about his comments? As a fairly average tax adviser I do not view fraud as a tax planning scheme, which I think would land me in jail for up to 14 years. I don't think I'm on my own with that one either. Mr Varney I'd like a proper apology - people that think MITF is tax planning should be correctly described as criminals, not tax advisers. Personally I can't think of any tax advisers promoting MITF - but I can think of a few frauds that have been committed by Revenue employees over the years.

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By User deleted
23rd Jan 2006 20:50

Actually, I had put in a comment which I think was
accidently edited out of this to say that MITC fraud is devised by criminals, and presumably some of those who create or mastermind these types of fraud have a tax background.

Given the complexity of some of these carousels, you cannot deny that accountants may be partly responsible, and yes, HMRC employees could be too.

Varney is just stating the obvious. The problem is that we don't know who is perpetrating this type of activity, and HMRC have to clutch any straws that they can.

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Dennis Howlett
By dahowlett
26th Jan 2006 11:42

Excuse me?
Let me get this straight. The Big 4 have said:

"advise such of our clients to whom this would be relevant " twice

"encourage those of our clients who could be affected" and then refer to risk assessment etc.

So are they going to shop those clients or resign the accounts? Apparently not, even if they could be construed to be conspiring to commit crimes.

You gotta ask where's the integrity in that?

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