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Last Updated: Tuesday, 7 November 2006, 13:47 GMT
Key UK anti-fraud rule delayed
Mobile phones and an MP3 player
The introduction of a rule which could cut VAT fraud losses in the UK has been delayed until next year by opposition from finance ministers from Paris, Germany and Austria.

HM Revenue and Customs wanted to bring in a 'reverse charge' for VAT on December 1 which would change the system for collecting tax on some imported electronic goods so that it would only be collected when items are sold by a retailer.

The proposal has been agreed by the European Commission but requires unanimous approval from finance ministers to be implemented.

It was due to go on the agenda of European finance ministers on Tuesday but according to French sources, Paris is concerned that VAT fraudsters will shift their attention to other EU states and want additional controls to prevent this.

It is also believed that Germany and Austria are unhappy about the ruling. They have previously had their own proposals to deal with VAT fraud rejected by the commission.

As a result, the measure was not put on the agenda.

An HMRC spokesperson said: "Because EU discussions are still continuing the reverse charge will not now be introduced on December 1.

"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 MTIC fraud but is also mindful that businesses will need time to prepare for its introduction.

"We will give businesses about eight weeks notice of its introduction."

The ministers are due to meet again at the end of this month.

The UK government asked the European Commission in January for permission to deviate from the Europe-wide VAT rules on the goods most commonly used in the fraud.

They include mobile phones, MP3 players, computer chips, hard drives, handheld computers, games consoles and satellite navigation equipment.

The Commission has supported the change but the new tax rule requires the agreement of all EU member states.

Carousel fraud

The fraud depends on the ability of criminals legitimately to import goods free of VAT from within the European Union.

They then charge VAT when they sell on the goods to another company, but instead of handing over the tax to HMRC they simply keep it and disappear.

The losses are multiplied if the goods are then re-exported, allowing the final trader to reclaim VAT he has paid.

If the goods go round and round in an elaborate circle through several countries the losses to the government multiply rapidly.

Huge losses

The government's own figures put VAT fraud losses at as much as 1.9bn for 2004 to 2005.

Chancellor Gordon Brown's 2005 to 2006 estimates are not due until the publication of his pre-budget report later this year.

In September, the Paymaster General, Dawn Primarolo, rejected the findings of a Belgium anti-fraud unit, obtained by Panorama, that estimated that the UK had been loosing a "catastrophic" 8.4bn to VAT fraudsters in just 12 months.

Unlike previous estimates, the Belgium figures were based on data from across the EU.

  • This is a website update to a Panorama film first broadcast on July 16 2006 called Do You Want To Be A Millionaire which investigated "carousel fraud" and confronted one convicted criminal, "Riviera" Ray Woolley. He was hiding in Switzerland having escaped from prison by hailing a taxi.
  • You can watch more about VAT fraud in Panorama's forthcoming film, What Happened Next which will be broadcast on Sunday 10 December at 2215 on this site and BBC One.

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