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HMRC DEFRS THE INTRODUCTION OF A REVERSE CHARGE MECHANISM ON ‘MTIC’ GOODS FOR A SECOND TIME

HMRC DEFRS THE INTRODUCTION OF A REVERSE CHARGE MECHANISM ON ‘MTIC’ GOODS FOR A SECOND TIME
HMRC issued Business Brief 19/06 on 8 November 2006 confirming that, due to a delay in obtaining the necessary derogation from the European Council, the proposed 1 December 2006 introduction of the reverse charge accounting requirement for specified goods considered to be used in MTIC frauds from would not now take place (they had previously intended to introduce the measure in October 2006).

 

The Brief did not specify a new target date for the introduction but did state that HMRC remain committed to the measure and that, when they are in a position to introduce it, advance notification of eight weeks will be given. HMRC have chosen to remain tight-lipped as to the reasons for the delay but speculation continues to put three EU Member States “in the frame” for raising objections to the UK proposal.

 

The UK proposal subsequently featured in the agenda for the last ECOFIN meeting of the year on 28 November. That  particular meeting had a significant VAT content, as it also addressed the future of the E-Commerce Directive after 1 January 2007 (see article at left). Whilst there appears to be no doubt that EU Ministers appreciate the seriousness of the susceptibility of the current VAT system to fraud (in particular the carousel/missing trader frauds), there does appear to be differing views on how the problem should be tackled. Views included the introduction of widespread reverse charge accounting for supplies above a certain value, the introduction of targeted reverse charge accounting for specified goods, and the introduction of a wider use of the joint and several liability concepts along the full chain of supply.

 

The output from the 28 November 2006 ECOFIN records that the discussions did not produce a conclusive way forward. Again, an intention is declared to bring forward the necessary legislative measures by the June 2007 ECOFIN at the latest.

 

STOP PRESS: Reports are now circulating that one of the three ‘dissenting’ Member States, identified as France, has withdrawn its objections to the UK’s application.  This is considered to be a big breakthrough for HMRC, as the expectation is that the other two Member States will follow suit.  This opens up the possibility of the reverse charge being introduced in the UK by Easter 2007.