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By | Joe Fay 1st June 2006 14:59

EC backs UK tax man on VAT fraud

HMRC to spin carousels into reverse

The European Commission has strengthened HMRC’s hand against VAT fraudsters by backing a “reverse charge mechanism” for VAT payments.

The backing for the reverse charge approach was announced as part of a “coherent European strategy” announced by Brussels yesterday.

A reverse charge system would mean VAT is accounted for only when a business sells a product to the end customer. At present VAT can be “paid” and reclaimed numerous times right through the supply chain, giving ample opportunity for missing trader and carousel fraud.

Her Majesty’s Revenue and Customs had sought EC backing for a reverse charge approach on certain high value, mobile items – such as mobile phones and computer chips – as part of its effort to crack down on missing trader fraud.

As part of the EC’s new coherent strategy, the commission also said it would consider strengthening “the principle of joint and several liability for the payment of tax with due regard for the principles of proportionality and legal certainty”.

Other measures it is considering include: increasing tax declaration obligations for some companies; reducing obligations for companies which enter into a partnership with tax authorities; using “standardised, high-performance IT tools for the rapid exchange of information” and “new ways of exchanging information, such as sharing common databases”.

Last month, The Guardian claimed that VAT losses to missing trader fraud in the last financial year were £5bn in the UK, and will hit £7bn this year, though HMRC has rubbished those figures.®

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