UK Planning Towards 'Reverse Charge' VAT Regime For Electronic Devices

by Amanda Banks, Tax-News.com, London

18 September 2006

The UK's tax authority is continuing to plan towards the introduction of a 'reverse-charge' VAT regime for firms trading in a wide range of electronic goods and mobile phones, in response to continuing 'missing trader' carousel fraud.

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 in the UK is dependent upon the EU derogation, the timetable for which is not fixed. Based on current progress, HMRC expects to implement the reverse charge on 1 December 2006.

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.

HMRC says it recognises the central importance of actively facilitating the development and delivery of software systems enhancements. To this end, the agency is now working intensively with software developers to provide them with details of the accounting requirements to operate the reverse charge in practice, and the specification for the associated creation and submission to HMRC of reverse charge sales lists. The goal is to release a first version of the 'specification' by the end of September.

Some businesses, says HMRC, will have to adopt some interim arrangements (by way, in effect, of a manual workaround). HMRC intends to work further with businesses (and their advisers) 'to help them to identify pragmatic
administrative solutions that can be adopted, which, while serving to corroborate that reverse charge accounting and reporting is being operated appropriately, at the same time minimise, as far as possible, the administration burden that such arrangements place on the businesses concerned.'

Recommended