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Andrew Needham, Director of VAT Solutions (UK) Ltd, outlines a recent change in the fight against VAT carousel fraud.

Introduction 

On 21 March 2007, HM Revenue & Customs (HMRC) issued Revenue & Customs Brief 24/07 confirming that the long-awaited Missing Trader Intra-Community (MTIC) reverse charge accounting requirement would be introduced from 1 June 2007.  The Brief gives further information on the reverse charge, including the goods to which it will apply, and also detailed the draft secondary legislation.

The necessary derogation has been obtained from the EU Council of Ministers, but apparently, this was only after an intervention from the European Commission. This intervention has resulted in a watering down of the original proposal, including a narrowing of the range of goods within the measure, and an increase in the ‘de minimis’ limit.

Scheme features

The essential features of the scheme are:

• it will apply to mobile telephones and integrated circuit devices, such as microprocessors and control processing units, in a state prior to integration into end-user products (note that this is a less extensive list than earlier published, but HMRC has confirmed that communication devices such as Blackberrys will come within the scope of the reverse charge)
• mobile phones supplied with an airtime contract are outside the scope of the reverse charge but ‘pay as you go’ (‘prepay’) phones will come within the scope of the reverse charge
• a ‘de minimis’ limit of £5,000 will apply to the total value of goods subject to the reverse charge supplied together and detailed on a single invoice (note that the de minimis limit has been raised from the earlier figure of £1,000)
• businesses on the Payments on Account (PoA) scheme affected by reverse charge accounting will be entitled to base their eligibility to PoA and payments due thereunder on their notional liability excluding the reverse charge VAT
• suppliers of goods subject to reverse charge accounting will be required to submit web-based Reverse Charge Sales Lists giving information on their sales, in addition to their normal VAT returns
• suppliers of goods subject to reverse charge accounting will be required to include a specific annotation on their invoices
• a ‘light touch’ will be adopted to penalties in the first six months.

The European Council confirmed its agreement of the UK derogation to introduce the reverse charge, by including it as an item in a wider press release of Council decisions issued 16 April 2007.

Comment

It goes without saying that any business affected by the reverse charge scheme should be considering the accounting systems implications as a matter of urgency!