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New VAT rules for chips and mobiles now in force

A new way of accounting for VAT which changes the way that VAT is paid on mobile phones, computer chips, cameras and certain other electronic goods took effect last week. The measure is designed to combat fraud in these goods.05 Jun 2007

As of 1st June 2007, VAT-registered customers buying these goods are required to pay the VAT on the sale to Her Majesty's Revenue and Customs (HMRC). VAT is paid to the supplier in most transactions. The move is designed to help combat what is known as MTIC (Missing Trader Intra-Community) fraud.

MTIC fraud is committed by obtaining VAT registration to acquire goods VAT free from other Member States. The fraudsters then sell on the goods at VAT inclusive prices and disappear without paying over the VAT paid by their customers to the tax authorities.

A variant of MTIC fraud known as carousel fraud occurs when goods that have been imported into the UK are sold through a series of transactions before being re-exported to another EU Member State. They may then be re-imported back into the UK.

The new accounting scheme is known as the "reverse charge" and it removes the mechanism by which fraudsters steal VAT. The process is targeted at mobile phones, computer chips, cameras, MP3 players and memory cards, as these are the goods most commonly used in MTIC fraud.

"MTIC fraud is a serious criminal attack on the tax system which diverts vital resources away from the UK's public services into the pockets of organised criminals and we are absolutely committed to stopping it," said Mike Eland, HMRC director general of enforcement and compliance. "Already our strategy has significantly reduced the level of attack, and we continue to track down and prosecute those behind the fraud as well as targeting others who choose to profit from it.

"The fraud is becoming increasingly sophisticated and complex. HMRC have further strengthened their strategy for tackling MTIC over the past few months, and the reverse charge will be an important tool in combating it," he said.