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VAT Carousel Fraud – The power of HMRC to sue in the civil Courts

HM Revenue & Customs has long viewed industries trading in high value goods, such as wholesale mobile phones, as being plagued with VAT carousel fraud*, a type of fraud that was said to have cost the country in excess of £30 billion per year at the height of its problem. For people who have traded in these types of industry, or who are close friends of, or family to, such people there may about to be an alarming new development as HMRC begin to use their powers to sue in the Civil Courts more frequently than previously to deal with this type of fraud.

The Proceeds of Crime Act 2002 Part 5 gave powers to the State to sue people in the civil courts to take from them money believed to be obtained through crime  The importance of this is that:

  • There is no jury deciding these cases as you would find in a criminal court.
  • The standard of evidence required for the state to win their case is much lower than they would need in a criminal court.
  • Rules concerning hearsay evidence are much less stringent in the civil courts; and,
  • The system is designed so that you will have difficulties in paying for a proper legal defence.

This means that the State can follow money and property into the hands of third parties, including close family members and friends of those accused/convicted of carousel fraud, who are at risk of having their lives turned upside down and inside out.

They will only be allowed to keep their property if they can show that (a) it was not property arising from crime, or, if it was, (b) that it was innocently acquired for its full market value.

More and more HMRC will refer such cases to the Serious Organised Crime Agency to use these civil recovery powers, which begs the questions: what has changed and why have these powers not been used more frequently up to now?

  • Firstly, the focus has been until now putting people out of business and shutting down industries rather than collecting in ill-gotten gains. That is about to change.
  • Secondly, there is a perception that a significant amount of money has been obtained illegally and squirreled away to be held by friends and relatives.
  • Thirdly, the State is under media pressure to show that these procedures are self financing.  What is needed therefore is a cash cow.
  • Fourthly, there seems to be a growing consensus amongst judges that anybody involved in certain industries must know that they are part of a widespread fraud particularly given the publicity carousel fraud has attracted in recent years.
  • Lastly, it is an open secret that the tax man has been building files on many people involved in these industries in the last several years particularly as claims for input tax are made.

What is the effect of HMRC’s use of its powers?

The effect of all this is that there are likely to be many innocent victims who will be subject to 3 or 4 years legal proceedings. They stand to lose everything they own if not defended robustly, which is where NDP comes in.

One of our areas of expertise is in regulatory disputes, particularly in helping people and companies who have regulatory disputes and problems with regulatory bodies such as HMRC. So, if you have an existing problem as a friend or relative of someone charged with carousel fraud, or indeed any type of regulatory dispute, then call us on 0121 200 7040 or contact us for our advice and help. The quicker you contact us, the more we can do to help.

(* Carousel fraud can work by organised criminals being able to manipulate the differences in the rate of VAT payable between goods supplied in the UK as opposed to the VAT rate payable when the goods are sold or purchased from other EU countries.)

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