The VAT reverse charge mechanism applied to mobile phones and computer chips has been renewed until April 2011. The mechanism was first implemented with effect from 1 June 2007 in order to remove VAT from supply chains.
The intention was to deprive VAT fraudsters of the opportunity to use these goods to carry out missing trader intra-community (MTIC) carousel fraud. The current derogation to apply this mechanism as an anti-fraud measure expired on 30 April 2009, and the Government announced in its Pre-Budget Report 2008 that it had applied for a renewal of the derogation.
The UK Government’s application to renew the derogation was formally agreed on 5 May 2009, with retroactive effect from 1 May 2009. It was inevitable that the UK would apply for renewal, given the success of the measure to date.
Isolating trade in mobile phones and computer chips from the VAT regime has proven to be an extremely effective tool in HMRC’s fight against VAT missing trader fraud, and this extension will provide comfort to legitimate businesses which continue to trade in these goods.