HMRC Delays 'Carousel' Reverse Charge Measure

by Robin Pilgrim, LawAndTax-News.com, London

10 November 2006

The UK's HMRC has had to postpone the introduction of reverse charging for VAT on goods such as mobile telephones and computer chips, intended to defend against 'carousel' fraud, due to continuing EU discussion on the issue.

The EU in fact refused a similar permission to Germany, although it had seemed to give the green light to the UK's plans.

HMRC says that although December 2006 had been given as the planned implementation date, 'because EU discussions about the necessary derogation are still continuing, the reverse charge will not now be introduced on 1 December.'

Goods covered by the reverse charge regime will include mobile telephones, computer chips/microprocessors/central processing units, electronic storage media, handheld devices for recording or playing of sound and or images, handheld computers, handheld communication devices other than mobile telephones, positional determination devices for GPS system, games consoles with screen, or of a kind used with a television or computer.

The UK has requested a derogation from the 6th EU VAT Directive to allow for the introduction of reverse charge accounting in respect of transactions of these goods. Under reverse charge accounting, it is the responsibility of the purchaser, rather than the seller, to account for VAT on the transaction.

Implementation of the reverse charge requires fundamental changes to the accounting systems of businesses trading in the relevant goods. Those accounting system changes are in turn dependent upon changes to the software that supports the accounting systems. For some (often larger) businesses with their own bespoke accounting systems, it is a question of making the necessary changes to those systems. For other businesses, it is a matter of amending a standard software accounting package via an update provided by the software supplier.

The Government still intends to introduce reverse charge accounting for these goods as soon as the derogation has been agreed, in order to counter attempted MTIC fraud, but says it is also mindful that businesses will need time to prepare for its introduction. HMRC has promised to give businesses about eight weeks notice of its introduction.

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