Carousel fraud accounted for 87 per cent of the total fraud cases reported in the UK for the first half of 2007.
According to research figures published by accounting firm BDO Stoy Hayward, there were 141 business frauds (reflecting a 42 per cent jump) over £50,000 in value at a cost of £538m, of which £468m was from major VAT and tax frauds.
It said the figure had already shot up for the first six months by a staggering £10m compared to the whole of 2006 when the value of VAT or carousel fraud, a complex EU-wide scam involving circumnavigating VAT receipts on small goods such as mobile phones and computer chips, totalled £458m.
BDO added that carousel fraud rocketed by 220 per cent above the whole of 2003 which accounted for £135m.
"Professional criminals have been quick to notice the millions that can be made from VAT carousel frauds. While there has been a crackdown I am sceptical it will halt this avalanche of huge frauds against the taxpayer.
"If you make tens of millions, and then succeed in keeping even a few per cent hidden when you get caught, then you will end up with a small sentence and a large amount hidden in an offshore bank," said Simon P Bevan, BDO's national head of fraud.
Carousel fraud, also known as missing trader intra community (MTIC) fraud, has been a big headache for HM Revenue and Customs. It recently introduced a "reverse charge" method in an attempt to crackdown on the growing problem.
But BDO said it was not convinced the government's methods will combat fraudsters. It said sentencing was too lenient to deter serious criminals whose main motivation was greed.
It found that the average sentence dished out for frauds over £50,000 would be about three years. Sentences for larger frauds (over £50m) averaged about six years.
Bevan said: "Many fraudsters are laughing all the way to their offshore tax haven. Fraud is set to keep increasing as long as others see it is a safe route to making large amounts of money illegally, particularly in the case of VAT frauds, where a couple of years in an open prison is not going to deter anyone with a criminal mindset."
BDO said the Midlands had become the UK's fraud hotspot with nearly 60 per cent (£312m) of the total value being undertaken by businesses and people based in the region, most of which was carousel fraud. London, however, had the highest number of reported frauds.
The findings follow last month's study by KPMG which highlighted very similar trends. ®