VAT Reverse Charge - what a mess – horses and stable doors come to mind – why should so many innocent traders be inconvenienced, in order to fight the few fraudsters perpetuating the Carousel Fraud across Europe.
On the 1st June, 2007, the UK Government will legislate that the movement of selected types of goods will be subject to Reverse Charge. The change of law, which has cost the country dear in terms of Maggie's 'rebate', is HMRC's belated attempt to fight the fraudsters who operate this lucrative loophole in EU VAT.
It’s taken the UK Government nearly 2 years to get other EU states to agree to allow the UK to change its VAT policy on mobile phones and computer chips – the main goods being used by the fraudsters. Its not surprising that HMRC’s advance notice gave fraudsters a good 'heads-up' and then the resulting implementation was so constrained (compared to the original declared intentions) that like the weather - its certainly watered down (but not for businesses and software authors).
Now that the legislation is about to come into force reliable sources suggest that the fraudsters have already moved on to IPods and Mont Blanc pens. HMRC believe it could take another year to extend the scope of the goods affected by its Reverse Charge process.
For those businesses affected – those that wholesale computer chips and mobile phones – the effect on their business processes is quite traumatic. Whist modern financial systems can cope with EU Acquisition Tax – a similar concept to Reverse Charge – these systems will still have to be upgraded (or re-configured) to meet the complex demands of Reverse Charge. There are de-minimis limits and Reverse Charge Sales Lists to be contended with – not as complex as originally envisaged – but still a significant burden on innocent traders.
HMRC is doing remarkably well at bringing the fraudsters to heal, not by Reverse Charge, but by jointly and several powers to stop all VAT payments to anyone in the Carousel loop. But this action is also affecting perfectly law abiding businesses. Already one 'innocent' trader has had to close down its business when HMRC refused a substantial VAT rebate.
BASDA estimated that these draconian measures would affect at least 15,000 companies in the UK - the computer chip companies have resellers 12,000 alone. Not all would need to upgrade their software, only those wholesaling significant numbers - the de-minimis invoice limit is £5,000.
For more information on the fraud see the http://business.guardian.co.uk/story/0,,2089860,00.html
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