December will see a major step forward in the fight against ‘carousel fraud’
with the introduction of a reverse charge mechanism for the goods often involved
in the fraud– mobile phones, handheld computers and other electronic components.
This will mean that the purchaser of the goods will account for the VAT on
the sale to avoid the seller disappearing without accounting for it to HM
Revenue & Customs.
This is a positive step and should make a real difference to the VAT leaking
from the system. It may also relieve the pressure many innocent businesses face
as a consequence of HMRC’s clamping down.
Currently businesses trying to register for VAT are facing a wait of up to
three months before they obtain their VAT number. This leads to increased set up
costs, delayed VAT repayment on expenses and places businesses in limbo.
Businesses are also suffering cashflow problems through the long delays in
obtaining refunds of their VAT repayment claims.
They are not even informed which of their transactions are under scrutiny.
This crackdown is hurting many legitimate businesses, and the legislation will
hopefully ease these restrictions.
It is likely that, by identifying a few specific items now that will be
liable to the reverse charge, the fraudsters will find a new range of goods to
In due course, the range of goods is likely to be extended. But this move
demonstrates how serious HMRC is and will be welcomed by all the bona fide
businesses trading in this sector.
Many businesses will need to think about the impact of the changes to trading
methods and IT systems. Even those not involved in the trading of electrical
goods may need to apply the reverse charge.
Retailers selling to a mixture of businesses and private customers will need
to differentiate at point of sale on the price charged and deal with the
In order to assist businesses through the red tape, a helpful step would be
clearer guidance from HMRC to guide them through the increased scrutiny they are
By helping legitimate businesses comply, HMRC can make sure businesses avoid
unnecessary investigations and identify fraudsters easier.
The reverse charge is a step in the right direction, though it is an old
solution to an old problem, as it was introduced in the past to stop VAT fraud
in gold trading.
The problem is that, whatever legislation is introduced, criminals will
continue to find ways to make huge sums by dodging the law.
Emma Howard is had of UK Indirect Tax Services, BDO Stoy Hayward
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