Summer 2007 Newsletter Content Reverse Charges Beyond The Grave Director's Two Hats IHT Plan Fails VAT And Cash Amnesty International An Inspector Calls Losing A Bet Caring Doctors TAAR Brush Made To Be Broken Flat VAT Safe Deposit Tax On Gas Working Late Composite Companies Excuses, Excuses

Reverse Charges After years of losing huge amounts of money to "carousel fraud", which involves trading between EU countries generally in mobile phones or computer chips, the government has taken steps to stop the criminals getting away with our money. If this works, the savings to the Exchequer will be huge - if it doesn't, more of everyone else's taxes will be poured into the hands of conmen. The way a carousel fraud works (don't try this at home) is that Mr Dodgy sells a lot of phones or chips (small, high value items) to someone else and charges VAT. Mr Innocent then sells them to a customer in another EU state - that's a VAT-free despatch, so Mr Innocent claims the VAT charged by Mr Dodgy from Customs. Meanwhile Mr Dodgy has disappeared with all the money Mr Innocent paid. As long as Mr Innocent truly had no way of knowing what Mr Dodgy was up to, and there really were some goods changing hands, Customs have to pay. From 1 June, transactions in phones and chips for more than £5,000 on a single invoice will not be charged to VAT in the normal way. In this example, Mr Dodgy could only charge the net amount on a UK sale to Mr Innocent; Mr Innocent would "reverse charge" the VAT by putting it in Box 1 of the VAT return (as if he was selling the phones to Mr Dodgy instead of buying them) and also in Box 4. Innocent doesn't claim anything back from Customs, and Dodgy has no means of conning people into paying over VAT that he can disappear with. It may work and it may not - the Dodgies of the world have made so much money over the last few years that they are surely able to employ clever people to think of ways round it. Whether it does or not, if you are involved in these areas of business you will need to be ready for the change. We will be happy to help.