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Reverse charge VAT to prevent carousel fraud

Note:

Reverse charge VAT is a term that covers both of the following scenarios:

Combatting the abuse of VAT legislation and preventing fraud in trade between businesses within the UK centres involving goods originating from the EC.
Accounting for VAT as a reverse charge on goods and services supplied to a UK business from an EC business.

The setup and use of tax rates is different in both scenarios. This topic is about combatting the abuse of VAT legislation and preventing carousel fraud. If you want information about accounting for VAT as a reverse charge when acquiring goods and services in the UK from an EC supplier, see the help topic, Trading in EC Countries.

From the 1st June 2007, the HMRC introduced new rules to combat the abuse of VAT regulations known as carousel fraud or missing trader intra community (MTIC) fraud.

The rules cover any business selling or buying specified ranges of electronic devices such as mobile telephones and computer chips when an invoice for a UK VAT registered customer exceeds £5000.

In the past a credit note is created for the return of the goods on the same value as the invoice. This amount is paid even if the credit note is less than £5000.

Under the new rules, the seller does not charge the buyer any VAT. However the invoice must clearly show the items that attract the reverse charge and the amount applicable. The HMRC have indicated that the wording should follow certain styles. The reports and invoices in Sage 200 follow these guidelines.

The buyer must record items where reverse charges have been applied separately from items where normal VAT has been applied. This allows you to identify these reverse charges when you run your VAT Return.

As part of this legislation, the seller is required to submit a reverse charge return (RCSL) form in CSVComma Separated Value (CSV) file format. Sage 200 can import and export data in the CSV file format. format. This new report can be printed from the Sales Ledger module reports.

To use reverse charge VAT to prevent carousel fraud

You must:

Set up the reverse charge tax rates in the Accounting System Manager.

	Selling	Buying
Vat Return	Select the VAT Return check box.
EC Terms	Select Reverse charge sales if you are selling the devices which fall under these rules.	Select Reverse charge purchase if you are buying items which fall under these rules.
% (tax rate)	Enter your local tax rate for the Reverse charge sales rate.	Enter 0 (zero) % for the Reverse charge purchase rate.

Selling

Buying

Vat Return

Select the VAT Return check box.

EC Terms

Select Reverse charge sales if you are selling the devices which fall under these rules.

Select Reverse charge purchase if you are buying items which fall under these rules.

% (tax rate)

Enter your local tax rate for the Reverse charge sales rate.

Enter 0 (zero) % for the Reverse charge purchase rate.

Ensure that appropriate product groups in the Stock module have reverse charge processing enabled and that all goods that fall under the reverse charge VAT rules for preventing carousel fraud are linked to such a product group.
Ensure that the relevant stock items have the correct settings selected.
Allow reverse charge VAT rules when printing invoices, set in the invoice printing settings in the Sales Order Processing settings Printing tab.