Reverse Charge Accounting

May 2007

The long awaited measures to counter Missing Trader Intra Community (MTIC) fraud will take effect on 1 June 2007. What are the implications for small businesses?

MTIC fraud involves setting up a VAT registration in the UK and using the registration to purchase goods free from VAT in another EU member state. The goods are then resold including VAT. The registered trader defaults on payment of the VAT added to the sale - hence the trader is missing!

The effects for smaller businesses have been significantly 'watered down' since the scheme was first mooted on 19 March 2007. Two points in particular should be noted:

The de minimis limit has been increased to £5,000 per transaction (this is the VAT inclusive value of a transaction), and
The scheme will now be targeted at mobile phones and computer chips only.

HMRC are quoted as saying:

"The de minimis limit is intended to relieve retailers of the need to carry out the necessary checks to establish whether a customer is VAT-registered and is purchasing the goods for a business purpose. Raising the de minimis limit to £5,000 should reduce the number of sales made by retailers to other businesses where reverse charge accounting could apply."

Now that the final measures are published any business who deals in mobile phones and/or computer chips may like to contact us for more background on the operation of the counter measures. Particularly the accounting and VAT reporting issues.