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Page last updated at 04:50 GMT, Friday, 22 September 2006 05:50 UK

Scams steal 8.4bn from taxpayer

By James Oliver
Panorama website exclusive

A carousel

British taxpayers have lost a "catastrophic" 8.4bn to VAT fraudsters in 12 months, according to the results of a report obtained by Panorama.

The figures claim that the UK lost five times more money to VAT cheats than any other EU country between June 2005 and June 2006.

The estimates from a Belgian taskforce created to fight fraud are much higher than the last published UK estimates.

But the UK government said it did not recognise the figures in the report.

The government's own figures put VAT fraud losses at as much as 1.9bn for 2004/05.

Chancellor Gordon Brown's 2005/06 estimates are not due until the publication of his pre-budget report later this year.

Accurate estimate

The Belgian figures come from a taskforce which includes government ministers and is called Ondersteuningscel in Dutch or Cellule de Soutien in French.

STOLEN VAT JUNE 2005/6
UK 12.6bn euros (8.4bn)
Spain 2.6bn euros (1.7bn)
Italy 2.3bn euros (1.5bn)
Germany 1.9bn euros (1.3bn)
France 1.5bn euros (1bn)
Source: Eurocanet

The taskforce analysed information gathered by a project sponsored by the European Commission called Eurocanet and claims that the report gives accurate estimates for VAT fraud losses across the EU.

Herve Jamar is the Belgian state secretary with responsibility for dealing with VAT fraud. He worked on the report and said Britain has a "unique problem".

"We estimate the loss to Britain to amount to 3.7bn Euros with the Dubai connection adding some 8bn Euros to this figure. It's clear there are very close commercial links between Britain and Dubai.

Belgian State Secretary, Herve Jamar
Belgian state secretary Herve Jamar worked on the report and says the UK has a "unique problem"

"We've made these calculations using very specific criteria, based on data we've collected and based on risk analysis. As a result, we've achieved much more realistic figures.

"And this work was done by police who specialise in tax fraud, in collaboration with other organisations. Our approach to this is therefore very objective."

VAT "carousel fraud" is also called missing trader intra-community fraud (MTIC).

It involves the repeated import and export of small, high value goods such as computer chips and mobile phones.

Under European trading rules a UK company importing the goods does not have to pay VAT but charges it to the next British company it sells the goods on to.

The goods are then exported before being re-imported.

WHAT IS CAROUSEL FRAUD?
Dubai Creek
Small high-value goods, such as mobile phones, are imported free of VAT from EU countries and sold with 17.5% tax added in the UK.
Instead of handing the VAT to the Government, the importing company run by criminals is shut down and the cash is kept by the importers.
This loss of tax is often compounded when the new owners of the goods export them again and can legally reclaim the VAT they paid.
Goods go round in a "carousel" via bogus supply chains within and beyond the EU because they are repeatedly imported and exported.
By exporting the goods to Dubai, the fraudsters break the evidential chain making the fraud harder to detect.

Each time the goods go round the carousel, the VAT that should be paid to HM Revenue and Customs (HMRC) goes missing.

The fraud first emerged in the mid-1990s but has exploded over the past year in the UK as criminals have exploited what law enforcement officials call the "Dubai Connection".

This involves exporting the goods to Dubai, which is outside the Single Market, before sending them back into the EU and round the carousel again.

By exporting the goods to Dubai, the fraudsters break the evidential chain making the fraud harder to detect.

According to the Belgian study, almost three quarters of the tax stolen by the fraudsters in the UK between June 2005 and June 2006 involved carousel frauds using the Dubai connection.

From December, a new VAT system aimed at stopping the scam will be introduced.

Called a "reverse charge", it means that for certain electronic goods only the final retailer will be able to levy VAT.

It aims to stop the criminals stealing VAT charged on goods imported free of the tax from elsewhere in the EU.

The Paymaster General, Dawn Primarolo told BBC News 24 that the government rejected Belgium claims that Britain had lost 8.4bn of revenue to tax fraudsters.

"The government wasn't involved in the compiling of this report and it simply isn't credible to accept the figures that are present in this report reflect a true picture.

"We've led the debate in the European Union of what's necessary in order to prevent and frustrate these attempts at stealing money and its very important to keep it in that context."

A Treasury spokesperson told Panorama that fraud estimates had been published for the past five years, and would be updated in the next pre-budget report.

"We cannot comment on the substance of this report and we do not recognise the figures that are set out for the UK," he said.

This fraud is widely acknowledged as a problem across the EU
UK Treasury

"However, MTIC fraud is widely acknowledged as a problem across the EU and we continue to work closely with our European partners to counter it."

"More than 1,400 HMRC officers are now involved in tackling carousel fraud.

"In response to the recent increase in attempted fraud, HMRC has significantly strengthened this strategy through a combination of legislation, litigation and operational activity," the spokesperson said.

"Recent operational data and trade figures show a significant reduction in the level of trading associated with MTIC fraud, and we are confident that this trend will continue, assisted by the forthcoming introduction of the reverse charge."

Diagram illustrating carousel fraud

This is a website update to a Panorama film first broadcast on July 16 2006 called Do You Want To Be A Millionaire which investigated "carousel fraud" and confronted one convicted criminal, "Riviera" Ray Woolley. He was hiding in Switzerland having escaped from prison by hailing a taxi.

video and audio news
How it is thought the VAT fraud is happening



SEE ALSO
UK cuts into carousel fraudsters
10 Oct 06 |  Business
Computer chip boss's 18m pay-out
03 Oct 06 |  Northern Ireland
Customs officers foil VAT fraud
01 Sep 06 |  Business
Ex-detective told to repay 1.6m
30 Aug 06 |  Nottinghamshire
UK 'hit by soaring fraud levels'
03 Aug 06 |  Business
Clampdown on VAT fraud
18 Sep 06 |  Business

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