UK WINS PERMISSION FOR VAT REVERSE CHARGE

The UK has finally been given approval by the EU to introduce reverse charging of VAT to disrupt carousel fraud. The new rules will apply from 1 June, but are restricted in scope compared with those originally proposed.

After months of bad-tempered negotiation, France has withdrawn its opposition to reverse charging. France had claim that it was concerned that the UK's adoption of reverse charging of VAT - with VAT imposed only on the last items in the chain of transactions - might simply move carousel fraud to other member states, such as France. However, the fraud has meanwhile risen sharply in France and fallen heavily in the UK. France's concession on the reverse charging rules coincides with an acceptance by the UK government of a reduction in it budget rebate.

The approved reverse charge system only applies to mobile phones and computers chips. This represents a significant change from the initial proposals from reverse charging as published by HM Revenue & Customs last September and notifies traders as intended for implementation last December. These rules had they been approved by the EU, would also have applied to other electronic equipment, including MP3 players, games consoles, handheld computers and satellite navigation equipment.

The adoption of reserve charges is only one of numerous measures being taken by HMRC to tackle the loss of billions of pounds of tax income through fraud. HMRC has allocated an extra 700 staff to combat the frauds, nearly doubling the number of customs officials involved. HMRC is also more actively checking VAT repayment claims from businesses in the mobile phone and computer chip trades.