Plans to wipe out a form of VAT fraud that is costing the Treasury billions cleared a major hurdle yesterday, according to an announcement by the Chancellor of the Exchequer.
Brown has secured agreement from France to introduce the reverse charge system in the UK, and reports of his announcement to the Treasury select committee suggest he is now confident that HM Revenue and Customs (HMRC) will soon be able to go ahead with the changes.
According to business advisers at Baker Tilly, the move would effectively stop missing trader fraud in the UK in its present form, which is costing the Treasury billions of pounds a year in unpaid taxes.
Illegitimate traders are currently importing goods such as mobile phones VAT free from Europe, selling them on to UK retailers with the tax re-added and then shutting up shop and disappearing with the cash, instead of handing it over to HMRC.
Under the reverse charge system, VAT will only be payable at the end of the supply chain when the goods are sold to the final user. Suppliers will not charge VAT, and only the final purchaser will be liable to account for the tax.
However, the Federation of Technological Industries (FTI) claims that Brown’s confidence is misplaced, as the changes will require the unanimous support of the EU community.
Speaking on behalf of the FTI, Chris Papaloizou said: “Germany and Austria have also opposed the UK’s plans over concerns that the problem will be shifted to other countries.
“France may have relented but they have a different tax system where VAT is paid directly to the fiscal authority. This doesn't necessarily mean that the other opposition will back down.”
© Crimson Business Ltd. 2006
