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ChangingMinds Blog! > Blog Archive > 27-Sep-06


Wednesday 27-September-06

Carousels, crime and cost

There is currently a con game going on in Britain that costing the taxpayer ?5bn per year. That's equivalent to 12 big, fully-equipped hospitals or 300 secondary schools. Every year. It's a stunning amount.

What on earth is the trick? This 'carousel fraud', as it is called, is based on the way that VAT (Value-added tax) is a self-administered tax. Companies sell things, add a percentage (17.5%), and then give the taxman the percentage. It works in reverse too. When you are registered to pay VAT on your sales, you can also claim back the VAT on your purchases, which means if you buy more than you sell, the taxman actually gives you money! The scam works by having your own companies selling things to one another. In theory, this would be a great big circle (like a carousel), with company A selling to company B and charging VAT. Company A then gives the VAT to the taxman and company B claims it back from the taxman. But what if the circle is broken? What if company A goes bankrupt? It then does not have to pay tax. Company B, however, can still claim it back, and the taxman is now out of pocket.

Easy, isn't it? Well it is for some very-well organized con artists. Their massive profits also mean that they can afford hotshot accountants and lawyers who can conceal financial deals in twisted trails and tie up any approach by the authorities in miles of red tape. It is legal at best in name only but is effectively defrauding the country of enormous amounts of public money.

Carousel fraud is not the only way that the country gets hit. An increasing and well-known trend is identity theft, where criminals use personal details of others to extract money from their victim's credit cards and banks. Everyone gets it in the neck on this, from individuals to insurers, and the economic damage to the country as a whole in 2005 was another ?1.7bn.

Crime pays, it seems, and big crime pays even more. Whilst capers and scams make for entertaining movies that tickle the delight of easy money, reality is a lot harsher. The government puts a lot into detection, which costs enormously and which again ends up being paid for by us. The total cost of crime in the UK is estimated at ?60bn. With a population of 60 million, that's a cost of ?1000 paid in some way by every man, woman and child, every year.

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