HMRC cracks down on gangs over renewable energy VAT fraud
Criminal gangs are targeting the renewable energy industry in the latest wave of VAT fraud that has been blamed for draining billions of euros from the EU every year.
HM Revenue & Customs said it had cracked down on the trading of renewable energy certificates “with immediate effect” to counter “a serious and credible threat to the VAT system”, according to the Guardian newspaper.
The emergency action came into force in June, without notice, to avoid tipping off the criminal gangs and prevent substantial VAT losses for the UK, it added.
The fraudsters are understood to be charging VAT on the sale of renewable energy “certificates of origin”, which they siphon off rather than pass on to HMRC.
The certificates are typically issued by renewable energy developers to energy suppliers as a guarantee that the electricity has come from a specific project.
However, they are also bought and sold by traders as a commodity, which, said HMRC, opens up an “opportunity for fraud”.
According to Richard Asquith of the tax expert Avalara, HMRC may have had inside information on recent fraud in the sector before taking action without a consultation, which he said was usual practice in urgent cases.
Asquith said the so-called “missing trader” fraud has been rampant in the UK in recent years. The fraud is estimated to cost EU states a total of €150bn (£133bn) a year in lost VAT revenue.
In the past, criminal gangs have targeted computer chips, mobile phones and precious metals. Fraudsters have also infiltrated the UK’s carbon credit market and the wholesale electricity trading.
HMRC described the scam as “a highly sophisticated and well-organised criminal attack on the VAT system”, adding that it will force all trading of renewable energy certificates to use a “reverse charge”, which means the buyer is liable to account for the VAT rather than the seller. “This removes the opportunity for the VAT to be stolen,” HMRC said.
It is the third time VAT fraudsters have targeted “green trading” in recent years after a €5bn EU-wide carbon trading fraud in 2009.
The scam re-emerged in 2014, targeting gas and electricity wholesale traders.
Three Britons, two Germans and a French national were given prison terms of three to seven years for their role in a €3m carbon credit VAT scam.
The fraud occurs when carbon credits are bought and imported tax-free from other EU countries, then sold to domestic buyers, who are charged VAT. Once the transactions are complete, the sellers ‘disappear’ without paying the VAT to HMRC.
One of those convicted, Mohsin Salya, from Preston, is understood to have used a Dubai-based company to carry out the fraud.
He also owns a string of luxury flats in the United Arab Emirates which many believe has replaced the ‘Costa del Crime’ in Spain as the place criminals conceal and invest the proceeds of carousel fraud.
The Observer newspaper reported last year that fraudsters involved in scams costing the Treasury almost £100m had bought a string of luxury flats in Dubai.
The carbon fraud convictions followed the sentencing of 15 people in 2014 for one of the most complex mobile phone tax frauds uncovered. The scam sought to reclaim £176m in VAT from HMRC.
HMRC’s most recent move to halt VAT fraud by bringing in reverse charges was in 2016 to guard against fraudsters making use of telecoms services.
By HMRC Enquiries, Investigations & Powers