Called the 'reverse charge', the measure is part of the
Government's wider strategy to tackle Missing Trader
Intra-Community (MTIC) fraud. By removing the opportunity to steal
VAT on business-to-business transactions the Government says it
will prevent VAT fraud in those goods.
MTIC fraud is committed by obtaining VAT registration to acquire
goods VAT free from other Member States. The fraudsters then sell
on the goods at VAT inclusive prices and disappear without paying
over the VAT paid by their customers to the tax authorities.
A variant of MTIC fraud known as carousel fraud occurs when
goods that have been imported into the UK are sold through a series
of transactions before being re-exported to another EU Member
State. They may then be re-imported back into the UK.
The fraud usually involves mobile phones or computer chips.
Paymaster General Dawn Primarolo MP said: "We are targeting the
measure at the goods most commonly used in the fraud. This is a
proportionate step to safeguard taxpayers' money, and means that
businesses can trade in these goods without the risk of getting
caught up in the fraud."
Under the reverse charge procedure the supplier of the specified
goods does not account for the VAT on their sales when selling to
other VAT-registered businesses – instead it is the responsibility
of the purchaser of the goods to account for the VAT.
Provided that the purchaser has correctly done so, they can
recover this VAT in the normal way. This means that HMRC is not put
in a position where it may have to make repayments of VAT where the
corresponding tax on the sale has not been paid to it.
HMRC has committed 700 additional staff, and now uses over 1500
staff to identify and tackle carousel fraud and those involved in
it.
In recent months HMRC has focused efforts on denying the
fraudsters access to the proceeds of their crimes, including
through checking VAT repayment claims from those trading in supply
chains associated with MTIC fraud. As a result the level of trading
associated with attempted fraud has fallen significantly in recent
months, according to HMRC.
The Government announced in January 2006 that it had sought a
derogation to introduce the reverse charge, and legislation was
included in last year's Finance Act, enabling the reverse charge to
be implemented on agreement of the derogation.
HMRC will shortly issue detailed guidance and draft
legislation.
