The BBC reports the House of Lords European Union committee believes HMRC’s additional checking efforts to bring carousel fraud under control are flawed:
The committee queries whether the HMRC can really sustain this level of checking, given that it involves about 1,500 staff, at a cost of £95m a year, with some supply chains under scrutiny involving up to 600 companies.
On June 1st, the rules change so that VAT is only collected at the final point in the supply chain on a specified range of goods. The Lords believe sophisticated gangs of fraudsters will merely move their attention to other high value, low weight goods such as perfumes, precious metals and software.
I can’t see software becoming a target because much consumer software can be downloaded directly from suppliers who charge VAT based on the country in which the buyer is located. Or, as is often the case, no VAT is charged when it comes from US suppliers where state by state sales tax applies.
The Lords concluded that the fraud, which is a huge problem across Europe, will only be ended if there is a complete overhaul of the European system of VAT.
They call for a flat rate of VAT, at 15%, to be levied on all cross-border trading in the EU, instead of – as is currently the case – exports to other EU countries being free of the tax.
It is widely acknowledged that flat rate cross border charging is a non-starter for political reasons. But moving the point of impact in what is termed the ‘reverse charge’ method is, in my opinion a very good idea for both collection and administrative purposes. The problem becomes one of figuring out which goods are most likely to be susceptible to attack. Unfortunately, that often means observing the incidence and pattern of fraud before taking reactionary steps. I’d be far more impressed if HMRC simply imposed the reverse charge on all goods to which VAT applies.
Update: To given an idea of scale, The Register’s Kelly Fiveash is reporting:
The son of Labour MP Mohammed Sarwar has been convicted of an £850,000 money laundering scam involving imported mobile phones.
Over a 2 month period!
