Crackdown on carbon credit scam

Carbon credit trading is to be subject to reverse value-added tax (VAT) charges in a bid to prevent fraud.

From November, a zero VAT rate put in place as an interim measure to combat scams is being replaced by a new system whereby the customer, rather than the supplier, has to account to HM Revenue & Customs (HMRC) for VAT.

The move is designed to tackle "missing trader" fraud, which has been a known scam for years over mobile commodities such as cigarettes, computer chips and phones.

Opportunities for so-called Missing Trader Intra-Community (MTIC) fraud over emissions allowances arose as most were VAT-free when bought from outside the UK by a company based here.

The fraudulent company would then sell the carbon credits to another UK firm, charging VAT, but would fail to pay this tax to the HMRC.

Instead, the company would disappear with the funds, becoming a "missing trader".

The credits, which must be bought by heavy industry as part of efforts to encourage companies to reduce emissions, have proved attractive to criminals because their intangible nature meant there was no need to ship goods across borders.

Last year, Europol, the cross-border police force, said that carbon trading fraudsters may have accounted for up to 90pc of all market activity in some European countries, with criminals mainly from Britain, France, Spain, Denmark and Holland pocketing an estimated €5bn (£4.1bn).

Figures from New Energy Finance showed the value of the global market fell from $38bn in the second quarter of last year to $30bn in the three months to the end of September after several countries cracked down.

In the UK, the Treasury removed VAT from carbon credits in July last year as a temporary measure until the European Union worked out a common policy against fraud.

However there was still suspicious activity, with UK-based fraudsters able to exploit the difference between zero-rated allowances in the UK and high rates of VAT in other European countries to steal money.

An EU directive allowing states to introduce reverse charging was made in March.

An HMRC spokeswoman said: "The criminal practice of exploiting carbon credits to generate fraudulent VAT repayments was stopped last year when carbon credits were zero rated for VAT purposes.

"This move was always intended as an interim measure until the legislation necessary to introduce a reverse charge could be put in place."

She added: "This work was completed on Friday."

Source:Telegraph.co.uk