Investigations of this nature often have numerous aspects such as interviews under caution by the investigating body. Each agency has different powers, some wider reaching than others. Other aspects could be confiscation and forfeiture proceedings, restraint proceedings and appeals to the First Tier Tax Tribunal.
Many businesses come under VAT scrutiny; however those some businesses are deliberately targeted by HMRC. These are often the telecommunications industry, businesses selling computer components and more recently companies involved in carbon emission trading. The HMRC have put various measures into place to try and stop these activities as they occur. The reverse charging mechanism is one example. In addition the VAT charged on carbon trading certificates was changed.
This specialist type of fraud basically involves goods being imported VAT free from EU countries and sold on at VAT inclusive prices. The company at the beginning of the chain then disappears without paying HMRC the VAT charged when selling the goods on. These companies are know as ‘missing traders’, ‘hijacked traders’ or ‘defaulting traders’. The goods are then sold down a chain of companies known as ‘buffer’ companies. These companies are used to disguise the paper trail of the fraud. Finally the last company in the chain exports the goods to the EU (or elsewhere) free of VAT. As this company had already paid VAT on its purchase of the goods from the supplier the company then reclaims the VAT back. If this was a legitimate trade then a reclaim of VAT is allowable. The same goods are often imported again into the UK and the chain starts again. This is how the fraud became known as a ‘carousel fraud’ due to the same goods going round again and again.