Saturday, September 12, 2009

Thousands in tax danger from alleged fraud

Thousands of construction workers are being urged to contact their local tax offices to see if they are victims of an alleged ВЈ6m fraud.

Twenty men and three women were arrested last week in the West Midlands, Staffordshire, London and Manchester following dawn raids by HM Revenue & Customs officers.

All 23 defendants have been bailed until January 2010 while HMRC continues its investigations into charges of conspiracy to cheat the tax man and money laundering.

During the arrests, cash totalling ВЈ130,004 was seized - ВЈ91,600 from nine sites in the West Midlands and ВЈ38,444 from two sites in the Manchester area. A further ВЈ2,000 in dollars and euros were seized.

Paperwork including bank accounts and computers, Class A drugs and associated equipment - scales and dealer apparatus - were also seized in the West Midlands.


Thousands in tax danger from alleged fraud


Thousands of workers are believed to have been robbed during the six-year swindle, which saw labour agencies deduct tax and National Insurance payments from operatives but not pass them on to the Revenue (see box).

Investigators are currently poring over documents and computer records seized during the series of co-ordinated raids on more than 40 premises to discover the extent of the scam.

Apart from the Treasury, the main victims of the fraud will be individual workers who assumed their cash deducted for tax and National Insurance was being passed on to HMRC.

A source close to the investigation said: "The only way for workers to check whether they have any problems with tax and National Insurance contributions is to get in touch with their local tax office.

"It is too early in the investigation to determine how many people will be in that situation but it is our belief that potentially thousands could be affected."

Construction workers who have gaps in their National Insurance record could be hit in the future with lower-than-expected state pension payouts and problems claiming other social security benefits.

How the fraud works

Missing trader fraud is simple in theory - but involves a sustained and well-planned period of deception to net criminals millions.

Labour supply contractors were providing workers to companies and receiving wages on their behalf gross of tax.

Site workers had their tax and National Insurance contributions deducted by the agencies.

But instead of compiling annual returns to HM Revenue & Customs and passing on the tax take, the labour suppliers simply folded the bogus firms and 'disappeared' without passing on a penny to HMRC.

The crooked agencies usually contracted out the work to a second subcontractor, who never actually supplied any labour to site and went missing with all the tax owed.

The first firm then covered the transactions by false paperwork in an attempt to fabricate their tax records and buy time to keep the fraud going.

The swindle is a similar model to one that has blighted the mobile phone and computer chip markets.

Crooks in these sectors exploited loopholes in legislation to pocket VAT money. VAT was only due to be paid by the supplier at the end of the chain for mobile phones and chips.

But fraudsters folded the companies before paying their VAT bill and pocketed the tax they had added on to transactions further down the chain.

One HMRC source said: "This type of fraud is simple in theory but it takes a lot of setting-up and is an elaborate deception.

"We are not talking about tax avoidance here - this is an organised crime gang exploiting the construction industry.

"They have seen an opportunity and exploited the way a lot of the industry operates by subcontracting out work."

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