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18 September 2006
Categories: News

Reverse charge

Given the continued scale of attempted missing trader intra community fraud, the Government is keen to introduce reverse charge accounting at the earliest opportunity. Implementation in the UK is dependent upon the EU derogation, the timetable for which is not fixed but, based on current progress, the reverse charge is expected to be implemented on 1 December 2006.

Reverse charge

Given the continued scale of attempted missing trader intra community fraud, the Government is keen to introduce reverse charge accounting at the earliest opportunity. Implementation in the UK is dependent upon the EU derogation, the timetable for which is not fixed but, based on current progress, the reverse charge is expected to be implemented on 1 December 2006.
HMRC is very grateful for the constructive engagement it continues to receive from the business community and other interested parties. The seminars held in August, and other discussions, have helped to shed important light on a number of issues that need to be addressed to facilitate the effective implementation of the new arrangements.
Two particular issues merit specific comment at this stage: the first relates to lead times for business to make the necessary changes to accounting software to provide for reverse charge accounting; the second relates to the issue of the proposed de minimis limits and the related anti-disaggregation provisions.
With regard to the first point, implementation of the reverse charge requires fundamental changes to the accounting systems of businesses trading in the relevant goods. Those accounting system changes are in turn dependent upon changes to the software that supports the accounting systems. HMRC recognise that the timeframe for the development and delivery to end-users of software upgrades to standard software packages is likely to run well beyond 1 December and into the early part of 2007, and accept, therefore, that many affected businesses will not be fully equipped at first to operate the new rules via their normal accounting systems.
In practice, such businesses will have to adopt some interim arrangements which could prove a complication for affected businesses. HMRC intend to work with businesses and their advisers to help them to identify pragmatic administrative solutions that can be adopted, which, while serving to corroborate that reverse charge accounting and reporting is being operated appropriately, at the same time minimise, as far as possible, the administration burden that such arrangements place on the businesses concerned. They also recognise that it will be appropriate to adopt a 'light touch' regime for penalties for non-compliance with reverse charge accounting in cases where there is no revenue loss, or the transactions are not part of a chain of transactions involving VAT fraud.
Turning to the de minimis provisions, these are very likely to remain a feature of the legislative framework for the reverse charge, not least because they are a feature of the derogation. HMRC recognise the need to arrive at pragmatic practical arrangements for the application of such rules, which can minimise the complexity at the working level for businesses concerned. In particular, HMRC are reviewing the need for the anti-disaggregation provisions.
HMRC intend to publish draft guidance for comment in October.
Business Brief 14/06, 15 September 2006

Categories: News
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