The reverse charge applies to mobile telephones and computer CPU’s. For the purposes of the reverse charge the definitions of these goods are quite broad so that goods such as Blackberrys are included in the scheme. The intention of this scheme is an attempt to eradicate MTIC fraud from these industries.
There are many sanctions HMRC can impose on businesses and operating in the reverse charge scheme does not provide complete safety from these sanctions.
Under the reverse charge mechanism, it is the purchaser of the goods, rather than the seller, who is liable to account for the VAT on the supply. The supplier will not charge VAT, but will have to specify on his invoice that the reverse charge applies. The purchaser must account for VAT, but has the right to input tax recovery on the same VAT return, subject to the normal rules. In other words the purchaser will effectively account for the VAT on the transaction as output tax but then cancel out the liability by reclaiming the input tax.
In any case there is the general a misconception that operating within the reverse charge scheme is risk free and there is therefore no need to carry out due diligence. HMRC make it plain that this is not the case in their Public Notice detailing the scheme. In the Notice HMRC use the term reasonable checks for due diligence.
HMRC state there is a clear requirement for due diligence to be carried out, they call this the need for reasonable checks. They also advise what sanctions they can apply if there are any irregularities in supply chains and that they will apply these sanctions if due diligence has not been carried out.
HMRC make it clear that they can subject VAT repayment claims to extended verification, can issue assessments disallowing input tax recovery and/or assessing for additional output tax and can issue joint and several liability assessments. HMRC also make it clear they can take action whether you are the supplier or customer in a transaction.
For further information Section 4 of HMRC’s Notice details their requirement to carry out due diligence checks see here.
Section 8 of their Notice details the assessments they can raise when irregularities arise. This section of the Notice also makes it plain that if you carry out due diligence then this is a defence against any assessments being issued, to see the section of the notice regarding this see here.
If you wish to consider HMRC’s full reverse charge guidance then their Notice can be seen here.
We are able to assist with all aspects of due diligence to provide you with a defence against the above mentioned sanctions and measures. To see what we can do for you see our services pages or contact us on 0844 562 6852 or by email and we will be happy to assist you.
