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Finance (No. 2) Bill

Clause 19 provides for a change in the VAT accounting provisions for sales of specific goods to tackle missing trader intra-community fraud. That fraud is an organised criminal attack on the VAT system, which, in 2004-05, is estimated to have cost up to £1.9 billion in stolen VAT. This change of accounting provision, known as the reverse charge, will be introduced once the necessary derogations from the sixth VAT directive have been agreed. It will apply to sales of certain specified goods between VAT-registered businesses. When the reverse charge applies, it is no longer the seller’s responsibility to account for and pay the VAT on the sale to Her Majesty’s Revenue and Customs, but that of the customer. Subsection (13) of new section 55A, which clause 19 introduces, of the VAT Act 1994 provides for amendments to be made to that Act by Treasury order where it is necessary and expedient for the reverse charge. Amendment No. 18 allows a Treasury order under this provision to amend the VAT Act to confer power on the Commissioners of Revenue and Customs to make regulations or exercise any other function. The amendment is necessary to ensure that the power can be tailored to introduce any change in the manner most appropriate to the circumstances. By that, I mean the evolving fraud being perpetrated. I appreciate that this is a wide power, but it is a necessary one, and of course it will receive proper scrutiny by this House. Amendments Nos. 19 and 20 reflect concerns highlighted following discussions with the European Commission about the need to ensure that the reverse charge mechanism does not create opportunities for further revenue loss—a matter that I am sure will also be of concern to Members of the House. The amendments allow HMRC to introduce secondary legislation, first, to require VAT-registered persons trading in the specified goods to which the reverse charge will apply to submit reports of those transactions and notify HMRC when they first make supplies of those goods; and secondly, to apply the existing penalties for similar statements in respect of intra-Community sales for inaccurate statements or non-submission of statements, as well as existing penalties for a failure to make any required notification.