Carousel Fraud – new accounting procedures from 01-06-07 (NHS)
04-04-2007
We reported late last year that the UK Government had suffered a setback in its proposals to combat carousel fraud because some EU countries would not agree to the introduction of the “reverse charge” procedure. This fraud relates principally to goods such as mobile phones, computer chips and some other electronic goods. Estimates of losses to the UK economy range from £2billion to £8billion a year.
The Government has now secured the necessary agreement of the EU to these measures and the new rules will be introduced on 1 June 2007.
Where the relevant conditions are met suppliers will operate the following procedure:
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VAT will not be charged on the supply of relevant goods
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The customer will be required to account for the VAT due via their VAT return
The relevant conditions are as follows:
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The goods are either mobile phones* or computer chips
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The value of the supply is £5,000 or more
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The customer will use the goods wholly or partly for business purposes
* Mobile phones include Blackberrys and Pay as You Go
phones. Phones which are supplied with an airtime contract
are excluded from the measure.
The accounting procedure is as follows:
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Output tax on the supply must be included in Box 1 of the customer’s VAT return. The supplier is required to state the amount of VAT payable on their invoice and this should be 17.5% of the net value.
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The VAT can be recovered by inclusion in Box 4 of the VAT return, subject to the normal rules, i.e. the VAT must be attributable to a taxable supply.
How will this affect the NHS?
This procedure applies to NHS bodies in the same way
as any other VAT registered organisation.
However, the procedure only applies where there will be some element of business use. If an NHS body intends to make a purchase which meets the conditions, it will need to advise the supplier whether the goods will be used for business or non-business purposes. There is no de minimis level of business use, so if, for example, mobile phones are being purchased for the use of a number of staff, some of whom are engaged in some level of business activity, then the procedure will apply.
As in most cases the use of the goods will be mainly for NHS non-business purposes, there will be no scope to recover the VAT. This will therefore put the NHS body in the same position as if the supplier had charged VAT.
It should be possible to identify the relevant invoices by the statement which suppliers should include on their invoices and we would therefore recommend that both procurement and payments staff are advised of the new rules so that relevant invoices are identified and the correct accounting procedure is applied.
If you have any queries on these new rules please contact your VAT Liaison advisor or our NHS Helpline on 0800 700 652.