Carbon credits are licences to emit carbon dioxide or
"permits to pollute"- and are seen as a vital weapon in
the battle against climate change.
They are issued to companies that emit CO2 such as power stations,
electricity companies and so on. They can be traded privately,
through a broker or through exchanges, the European Climate
Exchange, (ECX) being the largest.
In 2008 the market was worth almost £80 billion. However,
there are growing concerns that the UK has become a major target
for VAT fraudsters, which has led to a swift response from the
Government to ensure that the integrity of the EU Emissions Trading
Scheme is not undermined by VAT fraudsters.
VAT MTIC (Missing Trader Intra Community) fraud occurs when VAT
standard rated goods are traded free of VAT throughout the European
union. This is because although VAT is due in the country in which
the customer belongs VAT can be accounted for and simultaneously
reclaimed by the customer. The fraud takes place if the VAT is
charged on the actual domestic supply and the supplier disappears
without accounting for the VAT due.
Nationally, few firms, if any, have been involved in defending as
many HMRC prosecutions in recent years as Olliers. The largest of
our cases have tended to involve mobile phone trading and computer
chips.
Suspicions first arose in June when the French Budget Ministry made
permits VAT exempt after it was rumoured that a fraud was planned
against environmental trading exchange BlueNext. In the same month
similar measures were introduced in the Netherlands.
On midnight on the 30th July 2009 suppliers to the emissions
allowances in the UK became subject to the zero rate of VAT.
On the 19th August 2009 7 people were arrested by HMRC
investigators looking into a £38 million VAT fraud involving
carbon credits.
So from the Treasury's point of view, action has been taken to
prevent this sort of fraud continuing and from HMRC's
perspective, the investigations are now underway and one can only
assume further arrests and, in due course, further prosecutions
will follow.
What's more it's not just the missing trader who is at
risk. The end user who reclaims VAT from the tax man is also at
risk as HMRC may require the innocent party to prove that it took
all reasonable care to ensure that it was dealing with a bona fide
trading company. Failure to show reasonable care may lead to the
withholding of VAT.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
