Carousel hits taxpayers for billions; LAVISH LIFESTYLE OF MULTI MILLION POUND VAT FRAUD SUSPECT.

CAROUSEL fraudsters have cost the taxpayer across Europe billions.

The UK has suffered more at the hands of the criminal gangs than any other EU country.

The problem is so big, it has distorted the British economy.

HM Revenue and Customs have doubled their number of investigators to 1500 in a bid to control it.

Last year, the Office of National Statistics admitted revising a month's figures by pounds 500million to take the fraud into account.

Government figures revealed the scam cost the taxpayer pounds 3billion in 2005/06 - equal to 1p on income tax. But the taskforce Eurocanet, set up to fight VAT fraud, claimed the figure was much higher.

They said a more accurate sum was pounds 8.4billion.

Spain had the second worst problem - losing pounds 1.7billion.

Eurocanet claimed that criminal gangs cost Italy pounds 1.5billion, Germany pounds 1.3billion and France pounds 1billion.

The fraud originated within the EU after Brussels ruled that trade within the community should be VAT-free.

It has since spread to Dubai, Russia and West Africa and helped fund terrorist groups.

The goods - mobile phones and computer chips being the items of choice - are typically small, relatively high-value and easily transportable.

British VAT fraudsters are channelling much of their cash through Dubai.

Government statistics last year revealed that Britain exported pounds 4.8billion worth of goods there in 2005, making Dubai one of the biggest importers of UK goods.

Trading of mobile phones accounted for 60 per cent of that figure.

And Revenue and Customs believe most of those transactions were fraudulent as Dubai has a population of less than a million. In June 2005, Britain's exports to Dubai rocketed pounds 529million from pounds 204million the previous month.

Customs and Revenue have attempted to clamp down on the problem by withholding VAT payments on high-risk sectors such as mobiles.

They're also closely examining requests for VAT registration.

But their strategy has come in for criticism.

Although the crackdown appears to have helped make it more difficult for VAT fraudsters to operate, many legitimate businesses have suffered and have been forced to close.

CAPTION(S):

IMPORTS: Millions in fraudulent cash is believed to go through Dubai