Changes to finance systems

A number of new initiatives from Government this year will require changes to the way VAT and Payrolls are managed in the UK. This in turn will require changes to finance systems.
    
HMRC is introducing a new eFiling system for the VAT 100 form and there are plans to bring in new legislation to combat so called Carousel Fraud. For Payroll there are the new CIS rules which started on 6 April and which affect organisations employing sub-contractors on large construction projects.

VAT 100 eFiling
Currently, users have the option to fill in a paper VAT 100 form and post it to HMRC or, alternatively, to complete the form online after logging into the Government Gateway. As part of its plan to extend online services and encourage users to move away from paper submissions in all areas, HMRC is planning to introduce a new scheme which will enable users to generate their own VAT 100 file and transmit it directly to HMRC.
    
Almost all finance systems can generate a VAT 100 form but until recently, with the introduction of XML, it was difficult to generate a standard file which could be transmitted directly to HMRC from the financial software. HMRC hope to introduce such a system sometime in 2007 although, currently, there are still difficulties in ensuring the integrity of the data and the need to make allowances for manual adjustments which many businesses carry out before submission.
    
According to a report produced for the Business to Government (B2G) Team and the VAT Office, it is common for VAT registered businesses to complete their VAT returns, based on standard reports of VAT on sales and purchases, from their computer based accounting system, but other information such as Road Fuels Scale Charges, capital expenditure or credit card purchases may be drawn from other software reports or non-computerised sources and  transferred manually to the VAT return. This scenario applies across small or medium sized businesses, using less complex computer based accounting systems, to Multi National Enterprises using  Enterprise Resource Planning (ERP) systems.
    
There is no doubt that users will welcome the opportunity to generate and transmit a VAT return directly from the finance system to HMRC. The software developers know this and are keen to provide the facility as soon as possible, so contact your supplier for more information.

Reverse Charge VAT
‘Carousel’ Fraud or, more correctly, Missing Trader Inter-community Fund Fraud (MTIC) is said to have been costing the Government around £22 billion a year. HMRC has vowed to bring in new legislation to counter Carousel Fraud and has put forward proposals that are awaiting ratification by the European Council of Ministers. France and Germany recently vetoed the UK proposal but political pressure is continuing.
    
Carousel Fraud, takes place when a company registers for VAT and brings quantities of small, high value goods into the UK from another EU country, free of VAT. They then charge VAT when they sell on the goods to the supply chain, but instead of handing over the tax to HMRC they simply keep it and go bankrupt or disappear.
    
The losses are even greater if the goods are then re-exported, allowing the final trader to reclaim VAT that has been paid. Often only the parties at the ends of the chain are the actual fraudsters, using innocent intermediate dealers and wholesalers to cover their tracks.  The fraudsters are well organised and the same goods go round and round in an elaborate circle through several countries - hence the name ‘carousel’ - and the VAT losses continue to increase.
    
The new rules planned by HMRC will mean that VAT will not be charged on certain specified imported goods until they are sold to the end user through a retailer. Importers will be required to record transactions of the listed products through a scheme known as Reverse Charge VAT supplemented by a Reverse Charge Sales List report.

How it works
Reverse Charge VAT will impact on the purchase and sale of specific goods within the UK (mobile phones, computer chips, iPods etc). When these items are sold by a UK business to another UK VAT registered business they will have to be identified on the invoice as ‘Subject to Reverse Charge’ and will be zero-rated, so that the purchaser is aware of the VAT requirements for these items.
    
Also, the VAT number of that business will be required for later reporting on the new Reverse Charge Sales List (RCSL). When these items are sold to a non-VAT registered business or consumer, then VAT at the normal UK rate (currently 17.5 per cent) will be charged.
    
The items subject to ‘Reverse Charge’ will have to be declared as such on the VAT 100 form and not as typical local input/output VAT transactions. The Reverse Charge Sales List compiled detailing all the sales transactions relating to the items subject to ‘Reverse Charge’ will have to be sent electronically to HMRC. Initially this will be done by completing a web-based form, but as soon as it can be implemented it will be done by sending an electronic message to HMRC.
    
Since the ongoing cost to the Treasury of Carousel Fraud is considerable and growing, HMRC is very anxious to implement the new rules, so the requirements that I have set out are likely to be implemented as soon as possible in the New Year and software developers will be hoping to provide suitable upgrades to their software as soon as is practical

CIS
The new Construction Industry Scheme (CIS) will apply to any organisation, such as  Local Authorities and other major public bodies, which employ sub-contractors on construction projects valued at more than one million pounds.
It came into force in April 2007 and from the beginning HMRC will require contractors and other organisations to keep individual records of all sub-contractors employed, their tax status and payments made to them.
    
All sub-contractors must be registered with HMRC before employment commences and a verification number issued to identify them before the approved tax level can be applied to their payments. HMRC is proposing three different levels of tax – if the sub-contractor is not known to HMRC then the full rate of tax is levied.
    
The employing organisation must then send HMRC a monthly tax return for each sub-contractor, showing their ID details, the amounts paid and the tax deducted, with a copy for the sub-contractor. They have to sign a clause each month that confirms that they have considered the employment status of every sub-contractor included in the monthly return and that they are satisfied that the contracts that exist are not employment contracts.

Online monthly returns
Paper monthly returns are permissible, but HMRC is planning to encourage organisations to make them online. HMRC will send out pre-printed monthly returns to registered employers showing those sub-contractors already employed (one per sub-contractor) or, alternatively, the returns can be sent electronically by XML upload to the Government Gateway. The Government Gateway will take registrations for electronic filing from 5 April 2007 and Contractors should enrol for the HMRC CIS e-Filing Service after that date. The first filing will be from 5 May 2007 for payments made in April 2007.
    
To handle the new CIS scheme, users will need to upgrade their Accounts Payable or Payroll systems. BASDA will provide information on all the new requirements on their website at www.basda.org and software users should also consult their software vendors as early as possible.
    
BASDA is the international software standards body, based in the UK, representing 200 of the world's leading developers and suppliers of business application software. BASDA has developed standards and accreditations for handling business to business and business to Government eCommerce, euro compliance and VAT. It provides a key information service and runs seminars and workshops for the benefit of its members and business.For more information
Website: www.basda.org  

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