HM Revenue and Customs (HMRC) has had its wings clipped over its controversial Joint and Several Liability strategy following a European Court of Justice (ECJ) ruling last week.
Previously, in a case of unpaid VAT in a supply chain – for example, where one trader had been involved in carousel fraud – the remaining traders in that chain were held jointly and severally liable for the tax. However, a group of components and mobile phone traders, led by the Federation of Technological Industries (FTI), appealed to the ECJ last year over the strategy.
Although the ECJ ruling still allows HMRC to pursue joint and several liability, it is now subject to conditions. The government is also no longer allowed to force a trader to provide financial security for VAT owed by another firm.
The ruling stated: “Traders who take every precaution that could reasonably be required of them to ensure that their transactions do not form part of a chain, which includes a transaction vitiated by VAT fraud, must be able to rely on the legality of those transactions without the risk of being made jointly and severally liable.”
Anthony Elliot-Square, chairman of the FTI, told CRN: “We believe that the judgement is fair and justifies our action of referring the issue to the ECJ. Hopefully the ECJ decision will make the joint and several provisions more reasonable for legitimate traders, while providing the authorities with the powers to pursue the real fraudsters that are attacking our industry.”
An HMRC representative said: “The government welcomes the ECJ’s final confirmation that member states may legally prevent abuse of the VAT system and protect revenues by applying joint and several liability. Traders that do not take reasonable precautions are still at risk of being liable for unpaid VAT.”
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