Fraud alert issued, with potential to impact all businesses generating renewable energy and issuing REGOs, or trading in REGOs with counterparties in the UK, or overseas.
HMRC has recently issued a VAT Fraud Alert letter setting out its concern that fraudsters are seeking to abuse the VAT system, using EU Guarantees of Origin Certificates (more commonly referred to as Renewable Energy Guarantees of Origin (REGOs) in the UK).
This has the potential to impact all businesses generating renewable energy and issuing REGOs or trading in REGOs (with counterparties in the UK,or overseas).
Organised VAT fraud, such as Missing Trader Intra-Community VAT fraud (MTIC fraud) has been identified by Europol as one of seven key threats facing the EU. Europol estimates this fraud costs the EU around €100 billion per year.
MTIC fraud is a sophisticated fraud, particularly in terms of concealment. However, in the most basic form, the fraud involves a business collecting VAT from its customer but failing to remit the VAT, due to tax authorities then subsequently disappearing.
In order for MTIC fraud to take place, the following key elements must be present:
This makes the power and utilities sector at particularly high risk of being targeted by fraudsters in respect of the trading of REGOs.
The key issue is that, if the company is party to a supply chain containing fraud (irrespective of how far removed the fraud is from that taxpayer), they could lose the right to recover VAT. Such assessments often amount to millions, plus penalties, plus interest. This financial impact, of course, does not take into account the reputational risk of being associated with fraud.
HMRC track fraudsters and when they see them entering a particular marketplace they issue a sector warning letter.
In our experience, after the issuance of such a letter, there can often be a lengthy period of time before the fraud actually takes place – frequently, fraudsters trade legitimately for a period for concealment purposes. However, it is essential that bona fide businesses seek to assess and mitigate their risk immediately.
HMRC’s letter includes their standard wording, stating recipient businesses “may wish to review their existing processes….and, if necessary, update their compliance, anti-money-laundering and risk systems”.
KPMG can help businesses in this respect; either by providing assurance or helping you to understand the level of risk you may be carrying.