Select Committee on European Union Written Evidence

Memorandum by Earthshine Ltd

  We are writing in response to the EU Select Committee Call for Evidence in connection with the Enquiry into Missing Trader VAT fraud in the EU. We would first like to express how delighted we are that this subject is being investigated in greater depth and hope that it will benefit not only industry, and the taxpayer but allow Her Majesty's Revenue and Customs (HMRC) to conduct their enquiries more surgically, effectively and without having to continue the current policy of widespread penalisation, disruption and obstruction of established and wholly honest businesses.

  Earthshine Ltd was established in order to take advantage of the inflexibility and inability of the main Mobile Phone Distributors to keep pace with demands and trends. Mr Anthony Sharp took control of the company in 2002 and was joined in 2005 by Mr Philip Knatchbull and together they have taken Earthshine forward to the point where we are becoming a Public Limited Company. We have been at pains to establish ourselves as a trader with a reputation for honesty, professionalism and integrity. The corner stones of our business have always been:

    (a)  Thorough and detailed Due Diligence procedures.

    (b)  Transparency with HMRC.

    (c)  Repeat business with tried and tested reputable suppliers, customers and contractors.

  We would like to take this opportunity to explain a little more about how we try to conduct our business and our level of compliance and support for legitimacy. Our Due Diligence process primarily serves to protect us from unscrupulous traders. We have been made responsible (by HMRC) for establishing the credibility of our immediate suppliers and customers which we do with uncommon thoroughness. Our Due Diligence procedures from the corner stone of our credibility and follow a successful procedure which has evolved from a simple in-house check to the format we now use; we initially make contact with a potential supplier or customer and receive their company details. We will then task an external agency to investigate that company establishing their track record, financial standing and credibility, individual company members profile and historical business dealings. From there, that company's premises will be visited by an Earthshine representative and the external investigator and interviews undertaken and where possible copies of IDs and passports taken in order to confirm identities. In addition, a large number of digital photos of both the individuals present and the premises are taken. We see this use of an external agency as key to providing an independent assessment with greater credibility. This is an exhaustive and expensive process but we feel it vital to protect ourselves but also demonstrate to HMRC that not only do we have Due Diligence of the highest standards but also that we are trying to comply with the unreasonable requests placed upon us by Government agency. It is our belief that we should not be acting as a police force, however, we are at pains to provide as much information as possible.

  It is our belief that in order to deal with VAT Fraud, HMRC now follows a policy of disruption and delay using a process called Extended Verification. The required end state seems to be that of delaying or withholding VAT Repayments the end result of which is that the industry is unable to function due to a lack of what is essentially working capital. This policy is currently being applied across the entire industry regardless of the presence or absence of suspicion of wrong doing. In a recent Panorama Programme a spokesperson for HMRC said that they were happy to penalise the innocent in order to catch the guilty. This can be neither right nor legal. On a human level our relationship with our Customs Officer has always been extremely good. We provide details of every single transaction prior to completion, with follow ups of hard and soft copies sent via recorded delivery. We also make it a priority to comply with HMRC requests by return. However, historically our phone calls have gone unanswered and our letters are referred to a so called faceless "Central Hub". We have never had a personal response from the "Central Hub" and have been told verbally not to send emails or faxes. We are not provided with telephone numbers nor contacts with whom we can communicate within this organisation and all efforts to do so result in fruitless transfers from pillar to post. When we write to the "Central Hub" we receive no response. We have been asked repeatedly to send additional information which we have done expeditiously and sent by recorded delivery only for HMRC to claim they have never received the information.

  Our view point is this: We are a long standing export trader of mobile phones that has the highest standards of Due Diligence to ensure we are trading with legitimate traders and distributors and have always had our input VAT repaid, often after detailed and unnecessary investigation. Our detailed correspondence audit trail with HMRC will confirm this proving we are compliant with HMRC and the Law in every single aspect of our business dealings. As we see it, we are currently doing a great deal of the investigation on behalf of HMRC at our own expense. We understand that time may be required to conduct investigations but we have had repayments withheld since July. This is completely unreasonable.

  It is our contention that we are being unfairly and illegally targeted as a result of other people's wrong doing. We accept that there have historically been wrong doers within the industry and that there may still be those who require investigation. Our point is that as a Government Agency with extended legal powers and thousands of officers available to it HMRC should be able to sort the good from the bad instead of penalising an entire industry for being guilty by association. We have started detailed correspondence with HMRC in order to get VAT repaid and we will be reluctantly issue proceedings in the event that our reasonably put comments are continually rebuffed or ignored.

16 January 2007

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