The Government still intends to introduce reverse charge accounting for these goods as soon as the derogation has been agreed, in order to counter attempted MTIC (carousel) fraud, but is also mindful that businesses will need time to prepare for its introduction. HMRC will therefore give businesses about eight weeks notice of its introduction.
Under reverse charge accounting, it is the responsibility of the purchaser, rather than the seller, to account for VAT on the transaction.
Missing Trader Intra-Community (MITC) or carousel fraud is the theft of VAT from a government by exploiting the way VAT is treated within multi-jurisdictional trading.
The fraud exploits the fact that the movement of goods between EU member states is VAT-free. The fraudster charges VAT on the sale of goods, and then instead of paying this over to the government’s collection authority, simply absconds, taking the VAT with him.
The term "missing trader" refers to the fact that the trader goes missing with the VAT, "carousel" refers to the way that the fraud in a more complex manner sees VAT and goods passed around companies and jurisdictions, similar to how a carousel travels round.
Figures from Eurocanet, a European Commission sponsored project, released in September 2006, appear to show that the United Kingdom is the main victim of this fraud, having lost an estimated €12.6 billion during 2005-6, followed by Spain and Italy which each lost over €2 billion during this period.