Reverse charge
HMRC initially hoped to implement the proposed reverse charge accounting for businesses trading in mobile telephones, computer chips and certain other goods on 1 December 2006 (see Update, Taxation, 21 September 2006). However, as a number other EU countries have reservations about the issue, discussions about the necessary derogation are still continuing, which means that the reverse charge will not now be introduced on 1 December. The Government still intends to introduce reverse charge accounting for these goods as soon as the derogation has been agreed, in order to counter attempted missing trader intra community fraud, but is also mindful that businesses will need time to prepare for its introduction. HMRC is assuring businesses that they will give them eight weeks notice of its introduction, and will provide further information as soon as possible.
With levels of fraud said to be costing taxpayers the equivalent of 3 pence in the pound of income tax, HMRC are understandably keen to introduce the new regime, says Emma Howard, VAT partner at BDO Stoy Hayward. Thus the 'delay is unfortunate as reverse charging is an effective and simple step in the right direction against a complex and increasing problem'. She says that an EU-wide approach is needed for an effective solution, and the delay resulting from continuing negotiations among member countries 'is bad news for legitimate businesses, taxpayers and the Chancellor'.
Business Brief 19/06, 8 November 2006
Gaming machines
Following the decision of the European Court of Justice in Edith Linneweber Case C-453/02, many businesses that operate gaming machines claimed that they over-declared VAT on the takings from these machines for the period prior to 6 December 2005, i.e. when the definition of a gaming machine was amended.
Linneweber considered the European principle of fiscal neutrality as it applies to VAT, specifically looking at the different tax treatment that had been applied to identical gaming machines in Germany solely on the basis that the machines were situated in different locations. The UK has not applied different VAT liabilities to identical gaming machines and HMRC do not accept that the UK's tax treatment of gaming machines breached the principle of fiscal neutrality. Despite this, many businesses have submitted voluntary disclosures to recover VAT they consider was not due, with others adjusting their VAT returns, simply stating that the reason for doing so is because of the Linneweber decision.
As HMRC do not accept that the tax treatment of gaming machines was contrary to EC law, claims will only be considered if they are supported by evidence that:
- the machines in question are identical or substantially the same as those that they are being compared with;
- these machines are treated differently for VAT purposes; and
- this has caused distortion of competition for the taxpayer's business.
HMRC say that they will reject claims received without this evidence. They advise businesses that have adjusted their VAT returns because of the Linneweber decision to reconsider these adjustments as they will be scrutinised and assessments made where necessary with interest and penalties added as appropriate.
Business Brief 20/06, 9 November 2006
