HMRC is likely to bring forward plans to extend the UK’s domestic VAT reverse charge rules to cover energy supplies from the EU, after investigations into suspected cases of alleged VAT fraud in the wholesale gas and electricity energy markets have suggested there is a significant shortfall in receipts
In a note in its March VAT client news round up, Deloitte said it was aware that ‘HMRC has recently detected VAT losses occasioned by ‘missing trader’ fraud in the wholesale telecoms and gas/power markets and active investigations are ongoing’.
The firm said that ‘some businesses operating in these markets have been contacted by HMRC with long and very detailed lists of questions’.
Richard Asquith, head of tax at TMF Group, said between 100 and 200 traders have been questioned and that: ‘This is the next generation product which criminal gangs are targeting after the rules were changed to prevent missing trader fraud over mobile phones and computer chips.’
Asquith said the potential for fraud, particularly in the wholesale electricity market, was highlighted in June last year when the EU Council approved new legislation allowing all member states to apply the reverse charge mechanism to qualifying electricity and gas transactions in their national markets. A second piece of legislation allows the European Commission to grant member states special derogations for a maximum period of one year in case of major fraud attacks.
‘At that point HMRC said it had the issue under control, but this year we have seen HMRC asking large numbers of UK-based traders for details of their transactions with counterparties. As a result of their findings from these enquiries, we are likely to see legislation implementing the reverse charge mechanism given the green light within the next couple of months,’ Asquith said.
The Budget earlier this year included new measures to combat VAT ‘missing trader’ intra-community fraud in the wholesale gas and electricity markets, by proposing the introduction of a reverse charge rule for supplies to business customers, which means that the customer will be responsible for the VAT accounting, rather than the supplier. The measure is intended to remove the opportunity for fraudulent suppliers to collect VAT from their customers and then disappear without paying over the VAT to HMRC.
HMRC originally said it would be holding a consultation on the effective date for the change, to take account of the time businesses will need to make the necessary IT changes and other preparations for the orderly introduction of the reverse charge.
An HMRC spokesman told Accountancy: ‘For legal reasons, we can neither confirm nor deny any ongoing investigation.’
