HMRC Moves Against Carbon Credit Tax Fraudsters

by Jason Gorringe, Tax-News.com, London

25 August 2009

HM Revenue and Customs officers investigating a GBP38m suspected carbon credit value-added tax (VAT) fraud have made seven arrests.

HMRC and Europol, have announced that six men and one woman were arrested in the Greater London and Gravesend areas early in the morning of August 19 and twenty seven properties, both business and residential, were searched.

Europol is supporting the investigation and officers were also present in London to support the HMRC investigation team during the operation.

Those arrested are believed to be part of an organized crime group operating a network of companies trading large volumes of high-value carbon credits. The fraudulent companies purchase carbon credits from overseas VAT free sources and then sell them on to businesses in the UK at a VAT inclusive price. The VAT charged by the fraudulent companies is never paid to HMRC.

Les Beaumont, Deputy Director of Criminal Investigation for HM Revenue and Customs (HMRC) said: “HMRC investigates all criminal attacks on the tax system, halting theft of revenue, gathering evidence and supporting prosecutors in bringing offenders before the courts."

“We always aim to recover the proceeds of crime, restoring that money to the public purse where it belongs. That is our intention in this and all similar cases. The government took decisive action to prevent this type of fraud recurring by zero rating carbon credits for VAT."

Last month, The UK government introduced legislation to remove VAT from supplies of emissions allowances traded within the UK, in order to prevent the risk of VAT fraud. The measure means that supplies of emissions allowances in the UK are now subject to the zero-rate of VAT.

A zero-rate is still a taxable supply which means that although no VAT is charged, thereby removing the opportunity to steal VAT, the seller can generally reclaim VAT on any purchases that relate to those sales. This is meant to ensure that the legitimate trade will not incur additional tax costs from this change.

The French and Dutch governments have taken similar action with regards their own VAT laws in recent weeks to counter the threat of fraud, and further action at the European Union level to crackdown on carbon trading fraud is expected soon.

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