Reverse Charge VAT

Reverse Charge VAT – how will it affect your business? If so can your accounts solution cope?

In January 2006 the UK government set about plans to overhaul the VAT regime in an attempt to clamp down on missing trader scams which are costing it over £1bn per year. In June 2007 this became a reality, with the introduction of “Reverse Charge VAT”

In January 2006, HMRC asked the European Commission to let it to move to a “reverse charge” procedure for VAT on certain items, such as mobile phones, computer chips, and other high-value electronic items, to reduce the opportunity for fraudulent VAT claims.

The direct effect on business would be that suppliers of goods do not account for the VAT on sales to other VAT-registered firms. The end purchaser assumes responsibility for accounting for VAT, and recovering any rebate.

The whole reasoning behind this was to eliminate the opportunity for fraud in the trading chain, and mean HMRC is not put in the position of having to make VAT repayments to purchasers “where the corresponding tax on the purchase has not been paid.”

Customs’ had growing concern over the level of VAT fraud - which is though to be high enough to skew government figures on the balance of trade.

The fraud works by; scammers importing goods VAT free then sell them on at a VAT inclusive price. However, the VAT is never paid to the authorities, and the scammers disappear. Sometimes goods are re-circulated by multiple scammers in what are dubbed “carousel” frauds.

The end purchaser is then left trying to reclaim the missing VAT. HMRC had frozen VAT rebates to a number of firms who were unwittingly caught out in missing trader frauds, leaving them in dire straits. A European Court decision in January 06 ruled against this tactic.

How does this affect my business?

HMRC announced on 20 March that it would be introducing new legislation for the VAT treatment of mobile phones and computer chips. If you are involved in buying or selling computer chips or ‘Pay as you go’ mobile phones, and the invoice value for these items exceeds £5,000, you will need to comply with the new legislation effective from 1 June this year. The next versions of Opera II (5.13), Opera (3.51) and Capital Gold (3.54) will be compliant with the new regulations. If you think your company will be affected by the above legislation read more by clicking the link below, or contact Mike Scahill on 0845 456 0050.

Author: Mike Scahill
Contact: mike.scahill@synergytechnology.co.uk

 

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