Carousel Fraud - Landmark Decision
A recent decision in the case of Livewire Telecom LON/06/1365 has demonstrated the complexity of VAT fraud cases involving carousel fraud.
The appellant was a wholesale broker (exporter) of mainly new mobile phones. In the course of selling such phones, the company made the relevant checks on both suppliers and customers and the unique phone reference numbers “IMEI”. However, in 2006, HMRC refused to make a significant repayment of input tax on the basis that it suspected that the business was knowingly involved in “contra trading” in respect of 14 transactions. “Contra Trading” involves two separate supply chains, one “clean”, the other “dirty”. The dirty chain will include a “missing trader”. In this case, the appellant was part of the clean chain but HMRC claimed that it was knowingly involved in a carousel fraud.
The tribunal decided, on the evidence available, that the due diligence process of the business appeared to be flawed. However, the appellant could not have (nor ought to have) known of the fraud at the time the transactions took place. Interestingly the tribunal was also critical of the way HMRC presented its evidence and made suggestions as to how this could be improved for future cases.
Other businesses which have had input tax claims refused may now seek millions of pounds of VAT refunds.
HMRC are considering whether to appeal the decision.
The appellant was a wholesale broker (exporter) of mainly new mobile phones. In the course of selling such phones, the company made the relevant checks on both suppliers and customers and the unique phone reference numbers “IMEI”. However, in 2006, HMRC refused to make a significant repayment of input tax on the basis that it suspected that the business was knowingly involved in “contra trading” in respect of 14 transactions. “Contra Trading” involves two separate supply chains, one “clean”, the other “dirty”. The dirty chain will include a “missing trader”. In this case, the appellant was part of the clean chain but HMRC claimed that it was knowingly involved in a carousel fraud.
The tribunal decided, on the evidence available, that the due diligence process of the business appeared to be flawed. However, the appellant could not have (nor ought to have) known of the fraud at the time the transactions took place. Interestingly the tribunal was also critical of the way HMRC presented its evidence and made suggestions as to how this could be improved for future cases.
Other businesses which have had input tax claims refused may now seek millions of pounds of VAT refunds.
HMRC are considering whether to appeal the decision.
HMRC have now confirmed they will be appealing this decision to the High Court.
Is the action taken by hmrc regarding so called carousel fraud in denying traders carrying on business without being charged with any offence lawful ?
David
There have been several recent Court decisions involving "Carousel Fraud" which have found in favour of the taxpayer. These cases indicate that HMRC have taken their powers too far, when denying innocent traders from reclaiming VAT in respect of transactions which were later found to be fraudulent further up the "chain".
Each case has to be considered on its own merits however.
Jane
Livewire Telecom has now been successful at the High Court. This decision forces HMRC to produce evidence of fraud.
Hundreds of businesses which have had VAT repayments withheld on this basis, should now pursue their individual cases with HMRC.