Memorandum by Helen Donoghue, Director,
the Charities' Tax Reform Group
MISSING TRADER INTRA COMMUNITY (MTIC) FRAUD
COUNTER-MEASURES
I am writing on behalf of the Charities' Tax
Reform Group (CTRG) in response to call by the Economic and Financial
Affairs and International Trade (Sub-Committee A) for evidence
following its decision to broaden its continuing inquiry into
the issues surrounding MTIC fraud.
CTRG has over 400 members of all sizes representing
all types of charitable activity. CTRG was set up in 1982 to make
representations to Government on charity taxation and it has since
become the leading voice for the sector on tax issues.
CTRG has met HM Treasury officials on behalf
of its members to discuss the MTIC proposals. Our views on the
MTIC fraud counter-measures proposed by the Government are based
on comments received from several members following discussions
with them; and although our concerns may not be central to the
work of the Committee, we would be grateful if the Committee would
note our concerns about the possible impact of the Government's
proposed measures on the charitable sector in the UK.
CTRG welcomed the Government's willingness to
consult in advance of bringing forward draft legislation to tackle
MTIC fraud. We recognise the need to tackle MTIC fraud and we
understand that the Government cannot exempt charities from its
proposed measures given that it must seek to prevent the fraud
migrating to new areas. We are, however, concerned about the compliance
costs that charities may face as a result of the new measures.
For detailed reasons that are explained below,
we urged the Government to increase the proposed de minimis
limit of £1,000 to at least £5,000 in order to minimise
the adverse impact that the proposed measures may have on charities.
We believe that at this level the negative impact of the proposed
measures will be minimal for most charities, while meeting the
Government's need to tackle MTIC fraud. Some members have asked
for a limit of £10,000, but we appreciate that this may be
impractical from HMRC's point of view and we hope that the Government
will regard a limit of £5,000 as realistic. We also suggested
that certain small electronic products, such as mobile telephones
and BlackBerry-type equipment, should be exempted from the measures
if they are tied to UK contracts.
Charities will certainly face additional compliance
costs if the Government's proposed measures are introduced. The
proposed new MTIC fraud counter-measures will require some additional
VAT training for charity finance officers and may require new
systems to be introduced.
If transactions arise that require the reverse
charge to be declared in Output VAT, they will be administratively
time-consuming and will require someone with a higher level of
experience to process these transactions than would normally be
the case with ordinary transactions, thus increasing costs. Some
of our members also referred specifically to the impact of the
measures on training for staff and the need to raise the de
minimis limit given the relatively high cost of training equipment,
such as video cameras.
We are also concerned that lack of familiarity
with the new measures may mean that members who are only very
occasionally caught by them will forget to apply them. We believe
that this is another very good reason for raising the de minimis
level to reduce the likelihood of accidental errors occurring.
One CTRG member is concerned about the impact
of the proposed measures on the development of their services
for blind people. They are looking at the possibility of supplying
specialist MP3 players for visually impaired people and told us
this type of device represents the future of their service.
Another CTRG member is "assuming the proposed
measure would not apply to items specifically for the personal
or domestic use of the visually impaired which we can currently
zero rate as a charity". It would be helpful, therefore,
if the Committee could ask the Government to clarify whether products
bought by a charity and sold to individual blind or partially-sighted
people that are covered by the solely designed relief (and, therefore,
zero-rated when they are acquired by the charity) would be excluded
from the proposed MTIC counter-measures.
More generally, we would be grateful if the
Committee could seek confirmation from the Government that all
goods qualifying for zero-rating will be excluded from the proposed
counter-measures.
In case it is helpful to the Committee in assessing
the likely impact of the proposed measures, I have attached as
an appendix the response we received from one member charity which
provides an insight into the practical consequences of the proposed
measures.
Finally, as members of the Committee will understand,
we are concerned that any increase in the range of items covered
by these measures will increase the number of charities affected
by them.
8 December 2006
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