Change for VAT treatment of mobile phones

HMRC have published guidance for businesses which buy and sell mobile phones, computer chips and certain other goods which will change the way in which VAT is dealt with on these items by making the purchaser responsible for paying the VAT using a system known as ‘reverse charge’. This means that the purchaser will be responsible for paying the VAT on the purchase of the goods and then will generally be able to claim a deduction for the input VAT suffered on the goods purchased.

This change in treatment is as a result of carousel fraud or missing trader fraud which is estimated to costs one to two billion pounds a year in lost VAT.

HMRC had asked for EC approval to change the VAT treatment of these items and propose to implement the change with effect from 1 December 2006 which does not give much time for those businesses affected to get their systems working correctly.

Internet link: HMRC business brief