HMRC praises VAT fraud strategy

KPMG says government's fraud-busiting strategy is paying off

HM Revenue & Customs (HMRC) has hailed its VAT fraud-busting strategy after it was praised by KPMG for contributing to a dramatic drop in public sector fraud in 2008.

According to the KPMG Fraud Barometer, overall fraud mushroomed in 2008, with £1.1bn of cases coming to UK courts, the second highest level in the survey’s 21-year history (Channelweb, 3 February).

But the report revealed how public sector fraud had dropped, with 56 cases worth £207m coming to court in 2008 compared to 68 cases worth £833m in 2007.

Carousel or MTIC fraud ­ most commonly associated with mobile phone and computer components traders ­ dropped from £700m in 2007 to £115m in 2008.

Hitesh Patel, fraud investigation partner at KPMG Forensic, said: “While not out of the woods yet because further carousel fraud prosecutions may come to court, it is an encouraging sign that government efforts to counteract carousel fraud may be paying dividends.”

An HMRC representative said: “The growth of MTIC fraud has been successfully reversed through our strategy, which has resulted in activity in this pernicious fraud falling to historically low levels.

“We thoroughly investigate VAT repayment applications and refuse repayment whenever we have suspicions. We will not repay the VAT until we are completely satisfied that the claim is legitimate.”

Anthony Elliot-Square, managing director of the International Phone Traders web site, said: “HMRC’s VAT strategy has been a little like saying it is going to stop cars speeding by banning all cars from the road.

“But on a positive note it shows there is still a legitimate industry out there, despite HMRC, because business has increased this year.”