Squeezing trade

07 Dec 2011, sara yirrell  , CRN

Trade has been the backbone of the UK economy for hundreds, if not thousands, of years.

In fact, a recent joint report by the CBI and Ernst&Young claimed the government needs to increase net exports to 2.5 per cent by 2016 to stimulate the economy, which could eventually see £20bn added to UK plc’s bottom line.

So why is it that mobile phone and computer component (CPU) traders, the majority of which are trying to run successful businesses and establish strong trade links, have been systematically persecuted by HM Revenue & Customs (HMRC) over the past seven years?

The government’s anti-VAT fraud strategy, Extended Verification, was set up to combat Missing Trader Intra-Community (MTIC) or “carousel” fraud in the UK by withholding VAT payments until it was satisfied the supply chain was clean.

But as the years went on, traders found themselves going out of business as their money was withheld on a more permanent basis, with HMRC claiming fraud had occurred within the chain but giving little evidence for its decision.

Those that could took the government to tribunal after a lengthy and costly appeals process, but even if judges ruled in the traders’ favour, the decision was always appealed by HMRC, adding more pain to the already crushed traders and more delays.

There is no denying that fraud does occur, and that there are unscrupulous traders out there, but tarring every trader with the same brush seems an unusual approach.

Anthony Elliot-Square, managing director of trade association International Phone Traders, said HMRC is negatively affecting the economic recovery.

“HMRC is being very aggressive against everybody now, but the country desperately needs to export. HMRC is still using Extended Verification against exporters,” he said. “The trouble is, if it is done too aggressively, all entrepreneurs will suffer - as will the industry as a whole. If we cannot export with confidence, the country cannot recover.”

Elliot-Square urged all affected traders to step up the fight against the government and lobby their local MP.

“I was having conversations with MPs while they were in opposition, but strangely enough now they are in power they are refusing to respond.

“We are calling for an honest public inquiry into the whole thing about how the tribunal system has been abused. But we need traders to get their MPs involved and bring the subject to the forefront of discussion,” he said.
 

Withholding evidence

Some traders have seen the light at the end of the tunnel.

Express Computers recently recovered a seven-figure VAT sum which had been withheld since 2006.

Similarly, trader Crucial Components won a case at the Royal Courts of Justice in November and is set to receive £120,000 plus interest from the government.

In both cases, HMRC officers were found to be withholding crucial evidence.

Liban Ahmed, a former HMRC officer turned litigation specialist at CTM, fought on behalf of the traders in court.

“We forced two HMRC officers to give evidence and the evidence was found wanting,” he said after the Crucial victory. “The tide seems to be turning against HMRC. These companies have to be given the opportunity for their case to be heard and we have to fight fire with fire.”

Dave Fisher, managing director of Silicon8, is one of those awaiting a VAT repayment and is finding HMRC’s approach frustrating to say the least.

“As we now head towards 2012, and six years of persecution by HMRC of traders in the CPU/phone industry, we are slowly beginning to see victories for innocent traders caught up in this shambolic exercise referred to by HMRC as ‘Extended Verification’.

“Recent successes by Liban Ahmed of CTM have proven without doubt that much of what HMRC is claiming is without merit or foundation. Even more worrying is the trend of HMRC officers to deliberately withhold crucial evidence from the tribunal in their attempts to avoid repaying innocent traders,” he added.

Fisher said the government is squandering taxpayers’ money on “armies of barristers, solicitors, policy staff and other HMRC staff” in an effort to “tackle” MTIC fraud.

“This is a misguided and ill-thought-out policy implemented by the previous government to address the serious issue of organised gangs intent on defrauding the UK taxpayer,” he said.

“Interestingly if there had been an actual crime committed by the traders within our industry, you can be certain a well-prepared case by HMRC would be brought against the suspects through the courts,” Fisher concluded. “That action can be applauded as HMRC is doing its job protecting the Revenue. But in the case of traders, hundreds of businesses have gone to the wall, affecting thousands of people and costing the taxpayer millions.”

Despite being contacted several times by CRN for a response to some of the claims in this piece, HMRC refused to comment.

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