HMRC shifts into Reverse gear

Government reveals 1 December start date for VAT strategy, but is still waiting for EU approval

HM Revenue and Customs (HMRC) is pushing ahead with its controversial VAT fraud-busting Reverse Charge strategy, despite the fact that it has still not been given the green light by the European Union (EU).

As first reported by CRN, HMRC has been pushing all year to get the strategy implemented (CRN 6 February), which is aimed at stamping out VAT carousel fraud in the UK, a practice which has cost the goverment over £8bn since 2001 and is particularly prevalent in the mobile phone, chips and components markets.

Reverse charge works by making the purchaser of the goods at the end of a chain, rather than each seller, liable for VAT. It was first mooted by HMRC after it lost its landmark case against components reseller Bond House Systems in January this year.

However Reverse Charge is still awaiting official EU approval before it can be written into UK law. Originally HMRC intended to get the strategy up and running as early as next month.

In 2004/05, HMRC figures claim the treasury was cheated out of between £1.2bn and £1.9bn but the final losses for the 2005/06 tax year are expected to be much higher.

However HMRC has admitted that hitting the 1 December deadline will be a challenge for UK firms. A statement on its website said:

"We would hope that some businesses with their own systems may still be able to make the necessary changes in time for the introduction of the new rules, and we remain keen to help them do so, although we recognise that this is a very challenging timeframe which may be very difficult to achieve.

"We also recognise, in the light of our discussions with software developers, that the timeframe for the development and delivery to end-users of software upgrades to standard software packages is likely to run well beyond 1 December and into the early part of 2007.

"We accept, therefore, that many affected businesses will not be fully equipped - from 'Day One' of the reverse charge - to operate the new rules via their normal accounting systems."