Chip traders win right to challenge VAT policy

Mobile phone and computer chip traders are to challenge a controversial Customs & Excise VAT policy in the European Court of Justice. A bid to block the legal challenge by Customs failed in the Court of Appeal in London on Friday.

Mobile phone and computer chip traders are to challenge a controversial Customs & Excise VAT policy in the European Court of Justice. A bid to block the legal challenge by Customs failed in the Court of Appeal in London on Friday.

As part of their crackdown on VAT fraud, Customs last year launched a "joint and several liability policy" - a strategy to hold all companies in a purchasing chain responsible for the VAT debts of fraudsters and missing traders.

The Federation of Technological Industries (FTI), representing 65 member companies, mounted a legal challenge claiming the Customs policy was not compatible with European VAT law.

The case revolves around whether or not the Government has the authority to charge businesses with the VAT that other businesses should have paid. The impact on the industry of the new Customs policy has been serious and is viewed by traders as unfair and onerous.

Welcoming Friday's judgment, Robert Holland, the FTI's lawyer, said: "We are very pleased. We said all along that the only proper place to determine this is the European Court of Justice."

The FTI has been trying to mount a challenge in the European Court in Luxembourg since earlier this year despite strong Customs legal opposition.

After a two-day London High Court hearing in February, heard by Mr Justice Lightman, the case was referred to the European Court.

The judge cautioned Customs & Excise to exercise great care before applying the joint and several liability provisions until the issue is decided one way or another.

Customs sought to block the FTI case at the Court of Appeal. But on Friday the Appeal judge, Lord Justice Ward, handed down his judgment. Customs failed to block the case and costs were awarded against them.

The judge said the Customs crackdown had been fair but added that certain points of law needed to be clarified in the European Court.

"It is with real misgiving that I conclude we must refer to the Court of Justice," he said.

"Dishonest trade in these goods must be stamped out. I encourage the Commissioners to apply the impugned law in expectation of eventual victory in Luxembourg."

Lord Justice Ward granted Customs permission to continue using the VAT strategy until the matter was heard in Europe.

Customs said: "We welcome the Court of Appeal's support of our actions to tackle this most serious and organised VAT fraud, which costs the UK taxpayer and robs our public services of more than £1bn a year. The court has stated that we should continue to apply these laws and we will do so proportionately and appropriately to stamp down on this systematic attack on the VAT system."

Customs VAT anti-fraud policies are being challenged on several fronts.

Bond House, one of the country's biggest international resellers of computer chips, is also to challenge Customs in the European Court of Justice. More than £13.5m in VAT repayments was initially withheld from the company after Customs claimed they were engaged in "non-economic activity".

Bond House has disputed the Customs claim and its case is to be heard in Luxembourg in November.