A crackdown on carousel fraud is likely to benefit the Treasury to the tune of £500m next year. But measures introduced in the Budget still fall far short of the estimated near £2bn of revenue lost to the practice.

Changes that signal the end of the carousel, if not the fraud, have been put in place despite concerns that some measures could place a huge burden on innocent companies.

HMRC’s derogation request to the European Commission will make the purchaser of goods account for VAT rather than the vendor.

‘Everybody accepts that it is a solution, although not a perfect one,’ said Stephen Coleclough, VAT partner at PricewaterhouseCoopers. ‘It means that the fraud can only be committed once, as it moves the risk of fraud to the end of the chain.’

But the other rules introduced will give HMRC the power to direct additional record-keeping requirements for companies that may have become inadvertently caught up in the fraud.

‘This is an extreme burden on genuine businesses, but in order to continue trading they will have to comply,’ said Paul Bradley, indirect tax partner at Mazars.

HMRC has estimated that carousel, or missing trader intra-community VAT fraud, is responsible for between £1.1bn and £1.9bn a year. While the figure of £500m saved next year is one of the largest savings the government is making, it still looks like a drop in the ocean compared with the amount of overall fraud being committed. 
But an HMRC spokeswoman said that the figure related solely to ‘reverse charge measures’ that have been introduced, and did not reflect all the work that is being carried out by HMRC to counter MTIC fraud.

She also said that the £500m figure was ‘a conservative estimate’ in line with government policy on such figures. Earlier this year, HMRC enraged the accounting profession by claiming some tax advisers thought carousel fraud was tax planning.