Channel players could be forced into provisional liquidation by Customs and Excise if the organisation turns to a lesser-known but harsher method of recouping unpaid VAT in its continuing clampdown on carousel/missing trader fraud.
Industry body the Federation of Technological Industries (FTI) issued the warning after last week's news that a landmark case against Customs, involving three firms unwittingly involved in VAT fraud, had received a positive official Opinion from the Advocate General of the European Court of Justice.
If the final judgment on the Bond House case, due later this year, is made in the firms' favour, Customs could be forced to explore alternative avenues of revenue collection.
Customs has the power to go to the High Court and request an order without notice to appoint a provisional liquidator to run the affairs of a firm suspected of not paying VAT on a transaction, while it uses company assets to cover costs.
The FTI is concerned that the court order can also stretch to other companies in the supply chain, even if they were unaware of any fraud being committed. Not only are company accounts frozen, but the personal accounts and finances of the company directors are also taken over.
Anthony Elliot-Square, chairman of the FTI - which represents traders of mobile phones and computer chips - said he understands Customs' position.
"Fraud is a very serious issue, but Customs' net is so coarse that it tends to take out innocent people at the same time. If there is fraud going on and they can prove it, that's fine. But don't bring companies down through the back door," he said.
A Customs representative said in a statement: "Customs uses all available tools at all points of the transaction chain to tackle this kind of fraud and to minimise revenue losses."
David Alexander, fraud investigation partner at market watcher KPMG, said firms should keep their eyes open when entering into high-value deals. "Often when a deal seems to good to be true, it is. Firms should always look at unusual transactions and avoid getting involved if they feel at all suspicious," he said.
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