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TAX NEWS: Revenue 'scammed out of £5bn a year'. By Dan Martin

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9th May 2006
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Up to £5bn is being stolen every year from government coffers as a result of organised criminals stepping up their scamming techniques, The Guardian reports.

The newspaper said that fraudsters' increasingly sophisticated methods have "staggered" customs officials who say because of the complexity of the scams they are hampered in their investigations.

According to the article, well-established crime gangs are turning their backs on robbery, drug trafficking and internet pornography in favour of tax fraud.

Billions are being lost to so-called "missing trader intra-community fraud" which involves fake companies trading with each other and HMRC being duped into providing VAT refunds for the bogus deals.

The products involved are usually low-value items such as mobile phones but some criminals also trade goods like kidney dialysis equipment, luxury cars and computer software.

During 2004-05, the Treasury estimates between £1.1bn and £1.9bn was lost to the practice - also known as "carousel fraud" - but new estimates seen by The Guardian show that the figure has trippled since 2004, bringing annual losses to £5bn.

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By listerramjet
09th May 2006 10:50

it is a simple enough lesson!
the more complex the tax system is, the more scope there is for fraud.

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Richard Murphy
By Richard Murphy
11th May 2006 17:21

Dim view?
No, I don't have a dim view of accountants, lawyers and bankers. Some are decent folk. But they're not willing to stand up to the far too many who aren't - and the evidence grows ever stronger that this is the case. As a result, and as both Simon Sweetman on this site and Alex Hawkes at Accountancy Age are beginning to ask, the world seems to be increasingly populated by tax evaders.

Almost without exception that tax evasion happens using mechamisms designed by or given credibility by bankers, lawyers or accountants who turn a blind eye to its possible use for this purpose. This is why I condemn all accountants, lawyers and bankers who work in offshore (unless they service a local business community with its real needs, and to get some scale of the involvement of the big firms and banks for that purpose look at a directory of bankers, lawyers and accountants in the Isle of Wight). The reason is simple. Like it or not they provide the veneer behind which serious tax avoidance, tax evasion, capital flight, corruption and serious crime occurs. I put it simply. That's unethical, and it's time our institutes said so.

And I do have an entirely realistic view of the world. I have taught 100s of people to fill in VAT returns. I know exactly what is involved. I even lectured VAT for a while. So I have an excellent grasp of the issues - and for most people VAT is not that hard to operate. So let's not pretend otherwise, and look at the reality - which is that the professions have lost their way on the issue of upholding ethical standards which condemn all anti-social behaviour, whether it be legal or otherwise.

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By mbuffery
10th May 2006 10:47

HMRC have themselves to blame
Earlier this year, following the loss of the Bond House case at the ECJ, HMRC finally announced proposals to request a derogation from the EC Commission to allow the reverse charge to be applied to supplies of certain types of goods, and presumably extended to other categories if necessary. This means that instead of paying over VAT to a potentially missing supplier, the recipient accounts for it to HMRC directly through its VAT return, recovering it in the same VAT return as input VAT if appropriate. The beauty of this procedure is that VAT is only paid over to HMRC by the last supplier - i.e the retailer or the actual user of the goods. There are no refunds to be paid out by the system, and without the cash, no opportunity for fraud. The scandal is that HMRC have first of all delayed in introducing this procedure, when I know for a fact they were aware of it at least two years ago, and that they preferred to make innocent traders responisble for making up losses caused by fraud.

Mark Buffery

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Richard Murphy
By Richard Murphy
09th May 2006 21:45

I beg to differ
The real moral is not that the tax system is too complex - VAT is easy to administer and has to be for users to be able to comply with it. That's the tax issue in this case.

The other issues are where the problems arise:

1) companies too easy to register, in false names

2) bank "know your client rules" clearly not working

3) and somewhere (I hate to say this, but it has to be true) professionals are helping these schemes work

4) lawyers are doing all they can to prevent cases come to court.

So it's not a case of tax being too easy. It's more a matter of:

1) make a lot harder to create companies (with proof required before tranfers of ownership of "off the shelf companies" is allowed - with vendors liable if they fail to do this)

2) make banks liable for fraud in accounts only used once or twice

3) look for measures to deal with professional people, even if they are at the peripherry of this fraud

Tough? Sure it is. But then, so is organised crime.

But don't blame tax complexity - that's just not true.

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By listerramjet
10th May 2006 09:10

Richard, I am intrigued as to how you reach such judgements?
if you want some evidence of just how complex VAT is to administer then go and talk to businesses that administer it (for free).

you seem to have a view that the world is fundamentally corrupt, and that it is all the fault of banks, accoutants and lawyers. In taking that stance you are doing a disservice to your fellow professionals; and your position is blind to the realities of the world.

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By dan06
10th May 2006 11:06

Uncovered at last.....
It's a fair cop!

Dan Martin
Business Writer
AccountingWEB

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By rasmith
10th May 2006 10:51

the solution seems simple...
... delete the full stop from your title, then arrest that Dan Martin bloke - he's a crook!

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