ACCA - The global body for professional accountants
Fraudsters have taken advantage of the multi-layered nature of VAT. They have found ways of obtaining a VAT refund without paying VAT themselves; they then disappear before the tax authorities can catch up with them. This is the so-called ‘missing trader’ fraud problem. One simple way to stop compliant traders from being duped into trading with such fraudsters is by keeping them informed of high-risk businesses. That is, actually giving them names and details of these fraudulent businesses so that if the innocent business encounters them, its managers will know not to trade. The UK tax authorities are very good at passing on this type of information but in many other member states even if the information is known by the tax authorities it is not generally passed on
—Chas Roy- Chowdhury, head of taxation, ACCA

Fraudsters can take advantage of cross-border VAT system

Small businesses in the UK and across the European Union are being excluded from operating on a cross-border basis because the VAT system in the UK and other member states is so complicated, says ACCA (the Association of Chartered Certified Accountants). 

To mark 40 years of VAT in the UK, ACCA has produced a report looking in-depth at the tax which points out that the various VAT rates and exclusions in each EU member state means that most small businesses are excluded from the single market by the complexities of accounting for VAT across what are soon to be 29 member states, as well as by the number of languages involved.

Chas Roy-Chowdhury, ACCA head of taxation, said: 'VAT was supposed to be simple. In the UK alone it has become a complicated tax, but when you add in the various rates and exclusions that apply in the EU it becomes a maze. The real losers in this are small businesses and consumers. Efforts to increase SME exports in the UK will always be stifled by the burden of the various VAT rates and exemptions across the EU. It is the most business-unfriendly tax there is, while consumers are forced to pay higher prices for the instances of double taxation.

'It is encouraging that the EU Commission is trying hard to get member states to focus serious attention on the problems that exist. The Commission is trying to make the necessary VAT information available over the internet in multiple languages so that SMEs can more readily assess whether it is viable for them to operate outside their own home market. However, more needs to be done to ensure VAT is not a bar to operating on a cross-border basis for smaller businesses.'

Fraud-friendly tax

ACCA points out that rates vastly vary from country-to-country with Hungary charging 27 per cent VAT, while Luxembourg sets VAT at 15 per cent. However, ACCA says in its report the real problem lies in the plethora of reduced rates and exemptions which causes problems. A harmonised system for reduced rates at a common, low level would not only help reduce the complexity for small businesses, but would also reduce the opportunity for tax fraud and litigation.

Chas Roy-Chowdhury says: 'Fraudsters have taken advantage of the multi-layered nature of VAT. They have found ways of obtaining a VAT refund without paying VAT themselves; they then disappear before the tax authorities can catch up with them. This is the so-called ‘missing trader’ fraud problem. One simple way to stop compliant traders from being duped into trading with such fraudsters is by keeping them informed of high-risk businesses. That is, actually giving them names and details of these fraudulent businesses so that if the innocent business encounters them, its managers will know not to trade. The UK tax authorities are very good at passing on this type of information but in many other member states even if the information is known by the tax authorities it is not generally passed on.'

ACCA says that had the eurozone crisis not happened there is a chance VAT would have disappeared before the next 40th anniversary of the tax. But having seen the way that politicians have ignored the markets during the euro crisis it’s likely they will ignore any defects in the VAT system and it will still be around for another 40 years. 

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For more information, please contact:

Steve Rudaini, ACCA Newsroom
+ 44 (0) 207 059 5622
+44 (0) 7801 133985
steve.rudaini@accaglobal.com  

Helen Thompson, ACCA Newsroom
+44 (0)20 7059 5759
+44 (0)7725 498654
helen.thompson@accaglobal.com 

Notes to Editors

  1. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. 
  2. We support our 154,000 members and 432,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,400 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence. 
  3. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.