UK: Deloitte Weekly VAT News - Week ended 2 September 2005

HMRC announce new "Civil Fraud" procedures

Following the merger between the Inland Revenue and Customs & Excise, a common procedure for tackling serious acts of evasion has been announced. The new Civil Investigations of Fraud procedure replaces the previous "Hansard" procedure used by Inland Revenue and the Civil Evasion procedures used by Customs & Excise. The new code came into effect on 1 September 2005 and will offer taxpayers a one time opportunity to make full disclosure of irregularities. If the taxpayer does not take this opportunity HMRC will conduct their own investigation although they will not prosecute for fraud except in certain limited circumstances.

In an unusual move, HMRC are looking to place ‘senior managers’ on short term secondments to businesses. The stated aim of the ‘Week in Business scheme’ is to allow staff members to increase their commercial awareness. Although any attempt by HMRC to increase commercial awareness is to be welcomed, any businesses approached by HMRC should consider carefully the practical issues surrounding these proposed secondments. There are concerns that the HMRC staff, who are expected to find secondment opportunities for themselves, could have unrestricted access during the secondment raising the prospect that individuals could use the opportunity to carry out an extended form of ‘control visit’.

In a move that will concern many in-house and independent tax advisors, the Australian Government has released draft legislation that would impose heavy penalties on anyone committing the ‘offence’ of having a substantial role in promoting or implementing tax evasion or tax avoidance. A similar penalty regime also exists in the US and it is likely that the UK authorities will consider both regimes closely as they continue to look at new ways to counter tax avoidance, which they say contributes to substantially lower tax revenues.

The EU Commission has published its report on the proposed ‘one stop shop’ and related changes to place of supply rules that are a key priority during the UK’s presidency of the EU. The primary purpose of the proposals is to allow taxpayers to comply with their EU-wide VAT obligations through the Member State in which they are established rather than facing compliance burdens in each country. The report suggests that the European Council should adopt a simplified version of the proposals to ensure that Member States reach a consensus earlier.

The UK has won an unlikely victory in an ongoing battle with the EU Commission over VAT on children’s clothes and shoes. Unlike the rest of Europe, the UK does not levy VAT on children’s clothing, arguing that this helps to reduce the bills of households with children. The Commission has long attempted to bring the UK into line with the rest of Europe arguing that children’s clothes are more expensive in the UK anyway. However, a recent study by the Commission has found that in fact children’s clothes are 13% less expensive in the UK then the EU average. According to the Treasury this finally proves that children’s clothes in the UK really are less expensive!

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