Government Takes Action To Tackle VAT Fraud On Emissions Allowances

Author:Mr Vivek Gambhir
Profession:CMS Cameron McKenna LLP

On 31 July 2009, the Treasury introduced the Value Added Tax(Emissions Allowances) Order 2009 (SI 2009/2093) that removes VATfrom supplies of emission allowances traded within the UK in orderto prevent the risk of VAT fraud. This development will be ofinterest to companies subject to the EU Emission Trading Scheme aswell as other companies involved in carbon trading.The new law that took effect from midnight on 31 July 2009 meansthat supplies of emission allowances in the UK will be subject tothe zero-rate of VAT. A zero-rate is still a taxable supply, whichmeans that although no VAT is charged, thereby removing theopportunity to steal VAT, the seller can generally reclaim VAT onany purchases that relate to those sales.As trading in emissions allowances is predominately betweenbusinesses which can reclaim VAT on purchases, the Governmentexpects that this measure will have a negligible tax cost, but thatit will effectively remove the opportunity to perpetrate fraudwhilst having no effect on legitimate trading.The change in VAT law is the latest attempt by the UK to combatthe fraud known as Missing Trader Intra-Community or Carouselfraud. This type of fraud is basically tax evasion in its simplestform where a trader charges and collects VAT, but fails to accountfor this VAT to HMRC and disappears before HMRC can pursue them.Previous changes targeted small high volume traded items such asmobile phones and computer chips, but it appears that there is nowevidence that the similar hallmarks of emissions allowances tradinghave attracted fraudsters.Next StepsAlthough similar measures have recently...

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