New VAT Reverse Charge Measure Likely From December 2006What is it?There has been significant coverage in the media about the amount of tax lost as a result of "Carousel" fraud, now more commonly referred to as "MTIC" (Missing Trader Intra Community) fraud. In an attempt to stamp out this type of fraud, HM Revenue & Customs have introduced this "reverse charge" measure.
When will the measure come in?Though the reverse charge provision was included in the Finance Act 2006 permission was needed from the European Union Commission before it could come into force. That permission has now been received and it is envisaged that the provision will come into effect in the near future. The exact date is expected to be confirmed shortly.
Who does it affect?The range of suppliers it affects are those selling:-
Mobile phones
Computer chips
Central processing units
Electronic storage mediums
Accessories for mobile phones (if sold with the phone)
Digital audio players
Digital cameras and camcorders
Hand-held computers
Games consoles
Satellite navigation devices
Retailers will also be affected because (subject to de minimis limits), they will no longer physically charge VAT on these goods to their VAT registered customers; instead these customers will be required to account for the VAT due on their own VAT returns, the “Reverse Charge” procedure.
All affected businesses, including customers, will need to ensure that their business and accounting systems can be adapted or modified in time to enable compliance with this new regime.What you need to do- Sellers
Will need to confirm that a buyer is registered for VAT by checking the validity of a VAT number with HMRC. The seller will also be required to supply HMRC with a sales list, listing all the customers and values on which VAT has not been charged. If the total value of the specified goods purchased by a customer in a day does not exceed £1,000, the reverse charge will not apply and the seller should charge VAT in the normal way.
- Purchasers
VAT accounted for under the reverse charge scheme will be recoverable on the normal VAT return, subject to any adjustment for partial exemption purposes. For a fully Vatable customer it will “simply” be an adjustment on the VAT return – no net payment will be made – but the relevant declarations must still be made and this means accounting systems must be able to report them. This change may be sufficient either to bring a business into the VAT Payment on Account Scheme or to take a business currently paying on account out of the scheme. Businesses which are not fully Vatable will suffer a reduction in VAT recovery.
STOP PRESSThe UK’s attempt to fight VAT fraud with the implementation of a reverse charge mechanism could be scuppered after Germany, Austria and France objected to the request. We would recommend you ensure your systems are updated as above, but watch this space for the next instalment.
If you have any queries regarding this article please contact Steve Cook, Tax Partner at
steve@nunn-hayward.com or call 01753 888211.
[The above is based on an article that appeared on a professional e-mail from “Chiltern”]
