HM Revenue and Customs (HMRC) could find itself in the dock after it emerged last week that several IT traders are taking legal action against the government body for withholding VAT repayments.
In January, as part of its ongoing crackdown on VAT fraud, HMRC applied to the European Commission for powers to change the way tax is collected in sectors of the IT industry that are deemed high-risk, such a mobile phones, chips and processors (CRN, 6 February).
However, the resulting ‘Reverse Charge’ strategy, whereby the purchaser of the goods rather than the seller is liable for VAT, was condemned by the channel (CRN, 24 July).
An HMRC representative told CRN that several traders were seeking judicial reviews. One High Court case has been adjoined until late September.
“Some traders are challenging HMRC’s withholding of repayment of tax, pending an extended verification of the claims,” the representative said.
Despite this, HMRC claimed that its withholding of tax is essential.
“This is a necessary and proportionate response to the threat that organisations wittingly continue to trade in transaction chains that defraud the Revenue,” HMRC said.
Anthony Elliot-Square, chairman of the Federation of Technological Industries, told CRN that HMRC is essentially a debtor and that traders were entitled to take legal action to recover money owed to them.
“HMRC is denying traders their legal entitlement to VAT paid out,” he said. “Therefore, traders are well within their rights to pursue it through legal routes.”
Phil Hemmings, director of corporate affairs at reseller Research Machines, said: “There is no great benefit in traders taking to the courts. They are doing it to show their dislike of HMRC’s methods and obviously feel that they have a point to make.”
According to 2004/05 HMRC figures, the UK’s annual VAT losses through fraud were between £1.1bn and £1.9bn.
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