If a business is transferred as a going concern, the transaction is not regarded as a transaction within the scope of VAT provided that certain conditions are satisfied.
VAT record keeping requirements for businesses transferred as a going concern will be brought into line with other tax and regulatory regimes so that the seller retains his records, except in the few cases where because the buyer retains the seller's VAT number it is essential for VAT compliance purposes that the records are passed over.
A business that makes both taxable and exempt supplies (a partly exempt business) must operate a partial exemption method to calculate how much VAT it can recover on its costs. Many large partly exempt businesses operate a ‘tailor-made’ special method that must be approved by HMRC before use.
Following consultation, the government intends implementing two changes with effect from 1 April 2007:
MTIC fraud is a sophisticated and organised criminal attack on the VAT system. The fraud arises through contrived transaction chains involving supplies of high value goods with the tax loss occurring when the VAT charged by the supplier is not paid to HMRC but can be reclaimed by the recipient.
A reverse charge procedure was introduced in Finance Act 2006 whereby the VAT registered customer, rather than the seller, accounts for and pays the VAT on the supply of certain goods of a kind used in MTIC fraud.
The planned implementation date of the reverse charge was 1 December 2006 but has been postponed because there have been difficulties in the negotiations with other member states on the derogation required by the UK to introduce the charge. The government has confirmed that the discussions are still continuing and still plans to introduce reverse charge VAT accounting for a range of goods including mobile phones and computer chips once the derogation has been agreed.