Customs crackdown is threatening mobile chip brokers

Mobile phone and computer chip brokers believe their industry is being "destroyed" by a Customs and Excise crackdown to root out VAT fraud.

In July, Customs began a freeze on VAT repayment claims for 40 of the biggest brokers of phone and computer chips, refusing to pay out £100m while an extensive "verification" exercise took place.

Legitimate traders have accused Customs of panic in the face of politically damaging revenue losses after failing to identify and act on the problem earlier.

According to Don Mavin, a former senior Customs investigator and now a director of tax advisers WJB Chiltern, who represents several traders who have been affected: "Customs have closed down the whole trade in central processing units (CPUs) and mobile phones on the grounds of looking for missing traders in the trading chain. They should concentrate on targeting missing traders, not legitimate companies."

A Chelmsford CPU broker, GSI Distribution Europe, is understood to be considering a judicial review against Customs. Another broker, who asked to remain anonymous, accused Customs of having "destroyed" the industry: "Customs have told me that they do not think the CPU broking is a legitimate business. But it is."

After complaints from traders, Customs informed them that "repayment for the period 06/02 will not be authorised until HM Customs and Excise is satisfied with the bona fide of the repayment including verification of transactions".

VAT fraud relies on weaknesses in the European single market, as trades between two EU countries are exempt from the tax. Fraudsters use front companies to import VAT-free and then sell on products in the UK, charging VAT at 17.5 per cent. Somewhere in the chain is a trader who disappears with the VAT, in some cases tens of millions of pounds. Mobile phones and computer chips are ideal targets for fraud because they are in high demand, small and easy to transport.

Although many traders have received some VAT repayments, Customs are refusing to rule out repeating the exercise, leaving traders unsure whether or not they can return to work.

According to WJB's Mr Mavin: "Businesses are in a very uncertain state. Some traders are still not trading at all." The operation is part of a sustained attempt by Customs to crack down on the fraud, which it estimates cost the taxpayer up to £2.6bn pounds in 2000/2001, and Customs insiders estimate that losses could reach £10bn. Organised crime groups have moved into the racket because it can be so lucrative.

In his report last year on excise duty collection, John Roques criticised Customs' slowness to identify the scale of the fraud. Customs were unavailable for comment.

At Birmingham Crown Court tomorrow the trial begins of four men accused of conspiracy to evade VAT on mobile phones originating in the EU. In another case, two mobile phone dealers from Stoke-on-Trent are due to appear before magistrates.

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