Hi-tech industries face VAT overhaul first

HMRC Primarolo

Primarolo: set on overhauling VAT rules

HMRC’s bid to have VAT rules relaxed to deal with carousel fraud is likely to
hit businesses dealing in microchips and mobile phones first, but could extend
to other industries.

Paymaster general Dawn Primarolo said yesterday that the government was set
on overhauling VAT rules, so that a buyer would account for the VAT on a
purchase rather than the seller.

Carousel frauds operate by traders charging for the tax, but not paying it to

They will now not be able to do so, and though the VAT will be added at every
stage of a purchase, it will not be paid until the end of the chain.

Though mobile phones and microchips have been mentioned as targets for the
move, fraudsters could simply move into other goods.

High-value, mobile products are those often used by fraudsters to create the
largest and easiest profits.

Dialysis machines and razor blades have been involved in the frauds in the
past, according to some.

A spokeswoman for HMRC said: ‘We will monitor the fraud to see if it evolves

Customs’ appeal to Europe to allow it to remove itself from European
requirements follows similar appeals by Germany and Austria, neither of which
have got the go ahead as yet. There is no time limit for the EC to rule on the
change, and all 25 member states have to agree.

Experts said, however, that they did not anticipate difficulty. Stephen
Coleclough of PwC said that given the importance of the issue, ‘I can’t see them
running into a huge problem getting it.’

HMRC has insisted that the move is just one of a number of initiatives it is
Advisers believe it may not necessarily solve the problem outright.

The bunching of the charge created by the new system could just move the
problem along the line, Coleclough said: ‘It’s an answer, but I think it means
you get a different sort of fraud. You move the problem to another place.’

Chas Roy-Chowdhury, head of taxation at ACCA, added: ‘They may close one can
of worms and open up another one.’

Coleclough suggested a database of VAT numbers against the companies they
relate to would help to allow businesses to verify those they are trading with.

Though the scheme operates in other countries, it has been resisted here on
data protection grounds.

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