Mobile phones and computer chips will now be subject to new VAT rules as part of government plans to tackle fraud in this sector.
Fraudsters have cost the Treasury billions of pounds importing these items VAT free from EU member states, selling them on to traders in the UK with the tax re-added and then pocketing the VAT instead of handing it over to HM Revenue and Customs (HMRC).
The loss to the treasury is then multiplied if the goods are exported out of the UK and the legitimate trader claims the VAT back from HMRC.
The prevalence of this fraud, dubbed MTIC (Missing Trader Intra-Community Fraud) or Carousel fraud (when goods are re-exported then re-imported) has had a knock-on effect on small, legitimate traders, which have been suffering lengthy delays when trying to reclaim their VAT expenditure.
However, on Friday 1 June, the ‘reverse charge’system was introduced, which removes the mechanism by which fraudsters steal VAT when trading in these goods, the government claimed.
Under the new system, VAT-registered customers are now required to pay the tax to HMRC on the point of sale, as opposed to the supplier.
Commenting on the move, Mike Eland, HMRC director for general enforcement and compliance said: “MTIC fraud is a serious criminal attack on the tax system which diverts vital resources away from the UK’s public services. Already our strategy has significantly reduced the level of attack.”
However, according to Dennis Knowles, indirect tax partner at Deloitte, the move may not be a completely effective solution.
“The House of Lords European Union Committee has recently acknowledged that the changes being made from the 1st June may mean that the fraud simply ‘mutate[s] into other sectors’,” he said.
© Crimson Business Ltd. 2007
