Hundreds of UK traders owed money by HMRC under their Extended Verification anti-fraud scheme are nervously awaiting a decision due from the Court of Appeal after four UK mobile phone traders took HMRC to the Court of Appeal in a joint case last week.

Calltel, Opto Telelinks, Mobilx and Blue Sphere Global had tried to get £26m of combined VAT payments repaid by HMRC but their individual cases through the VAT and Duties Tribunal and the High Court fell through.

HMRC’s policy to eradicate missing trader intra-community (MTIC) carousel fraud currently relies on a ‘means of knowledge’ test which has seen VAT repayments from mobile phone and computer chip companies indefinitely withheld whilst they try to establish whether the traders have run correct due diligence on their supply chains.

The appeal revolves around a case involving Axer Kittel, a Belgian trader, in which it was ruled that VAT should not be withheld from traders if they have ‘taken every precaution reasonably required of them to ensure their transactions are not connected with fraud’.

The ruling in the European Court of Justice (ECJ) has caused confusion in the UK however, due to unlimited interpretations of the law.

The ruling from the Court of Appeal is expected at the end of March/beginning of April, and will either give the go ahead for more than 600 traders to re-claim the £8bn owed by HMRC, compel them to appeal to the Supreme Court if the decision goes HMRC’s way or take the whole case back to the ECJ for a final ruling on the whole matter.

One anonymous trader said:-

“It will be very interesting to see what comes out of this case as it will have far-reaching implications either way”.

In a statement HMRC claimed their anti-fraud tactics were working.

“HMRC’s MTIC fraud strategy has had a dramatic impact on the levels of MTIC activity and subsequent losses. The various elements of the MTIC strategy, including the reverse charge, remain highly effective in suppressing carousel fraud, enabling HMRC to focus resources on areas of greatest risk such as the identification of, and action to tackle, fraud in carbon credits.

HMRC’s multi-faceted approach has ensured that losses have been kept well below their peak in 2005/06. In three years the impact of MTIC fraud on receipts per annum has been reduced by £1.5bn to £2bn.”

HMRC’s other strategy of reverse charge has had a positive impact. Removing VAT requirements from the supply chain and charging the end-customer to pay VAT has re-opened trade and also reduced the amount of cases going to court.

The spokesman did say however that they were very aware that the fraudsters had not simply ‘gone away’ and that they would remain vigilant.

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