UK goes into reverse on VAT fraud fight

Throws spanner in works for carousel scams

The UK government plans to overhaul the VAT regime in an attempt to clamp down on missing trader scams which are costing it over £1bn per year.

HMRC has asked the European Commission to let it to move to a “reverse charge” procedure for VAT on certain items, such as mobile phones, computer chips, and other high-value electronic items, to reduce the opportunity for fraudulent VAT claims.

This will mean suppliers of goods do not account for the VAT on sales to other VAT-registered firms. The end purchaser assumes responsibility for accounting for VAT, and recovering any rebate.

This should remove the opportunity for fraud in the trading chain, and mean HMRC is not put in the position of having to make VAT repayments to purchasers “where the corresponding tax on the purchase has not been paid.”

Customs’ move comes amidst growing concern over the level of VAT fraud - which though to be high enough to skew government figures on the balance of trade.

In such frauds, scammers import goods VAT free, then sell them on at a VAT inclusive price. However, the VAT is never paid to the authorities, and the scammers disappear. Sometimes goods are recirculated by multiple scammers in what are dubbed “carousel” frauds.

The end purchaser is then left trying to reclaim the missing VAT. HMRC had frozen VAT rebates to a number of firms who were unwittingly caught out in missing trader frauds, leaving them in dire straits. A European Court decision earlier this month ruled against this tactic. ®