VAT Reverse Charge on electronic goods to combat Carousel fraud

With effect from 1 December 2006 (subject to an announcement confirming this), traders who sell certain electronic goods will be required to use the ‘Reverse Charge’ procedure, rather than accounting for output tax under the conventional rules.

This has been introduced as a result of the Carousel fraud which has become so prevalent.

Businesses buying and/or selling any of the following goods will be affected:

1. mobile telephones,

2. computer chips/microprocessors/central processing units,

3. electronic storage medium which may be used in, or in connection with, computers, or any device in categories 1 and 4,

4. electronic devices used for the storage, processing or recording of electronic data as follows:

a) handheld devices for recording or playing of sound and or images,
b) handheld computers,
c) handheld communication devices other than mobile telephones,
d) positional determination devices for GPS system,
e) games consoles with screen, or of a kind used with a television or computer.

The rules affect only business-to-business transactions, where the net value of goods being sold exceeds £1,000.

The Reverse Charge means that the purchaser has to account for output tax, not the seller. The purchaser then reclaims the VAT as input tax. Fuller details are expected soon.

Wholesalers who regularly trade in these types of goods will be aware of the issues, and are likely to have their systems reviewed already. The greater risk will be for smaller retailers who make occasional B2B sales, and will need to account for VAT differently to their usual sales. Software developers and stationery suppliers may also find the same problems.

See HMRC Business Brief 10/06 and 14/06 for further information.

This update was kindly provided for Bytestart readers by Les Howard (VAT Consultant).
www.vatproblem.com