Major VAT changes:
- Place of supply rules
- Time of supply rules
- Introduction of EC sales lists for services and changes to EC sales lists for goods
- New electronic system for reclaiming VAT incurred in other EU member states
1 January 2010 sees the introduction of major changes which may affect the way you account for and report VAT on cross-border transactions. The most significant of these changes are:
- New rules for the place of supply of services
- Changes to the time of supply rules
- Introduction of EC sales lists (ESL's) for services and changes to EC sales lists for goods
- New online system for reclaiming VAT incurred in other European Union (EU) member states
New rules for the place of supply of services
Under what is known as the basic rule, the place of supply of services is where the supplier belongs unless any of the special place of supply rules apply. If the place of supply of your services is the UK, you must charge any UK VAT due and account for it to the VAT office regardless of where your customer belongs. If the place of supply of your services is another EU member state, you or your customer may be liable to account for any VAT due to the tax authorities of that member state. Where the supply of services is outside the EU, that supply is made outside the EU and therefore not liable to VAT (if any) in the member state and in no other country. If the member state is the UK, such supplies are said to be "outside the scope" of both UK and EU VAT.
From 1 January 2010 most services provided to business customers will be treated as supplied in the country where the business customer is established, and the business customer will account for VAT under the reverse charge mechanism whereby the business customer accounts for the VAT in their local VAT return. The VAT is deductible in the same VAT return according to normal VAT rules. The effect of the change in the "basic rule" is that in many cases VAT will no longer have to be charged (and reclaimed).
Services provided to non-business customers will still generally be liable to VAT in the country where the supplier is based.
Changes to the time of supply rules
The time at which VAT must be accounted for under the reverse charge mechanism will change on 1 January 2010. The changes will be introduced by secondary legislation later in the year.
Introduction of EC sales lists for services and changes to ESL's for goods
To enable tax authorities to check that VAT is being accounted for correctly by the business receiving intra-EU supplies of services, UK VAT-registered businesses that supply services to EU businesses, where the place of supply is the customer's country, will have to complete ESLs for each calendar quarter and submit these within 14 days for paper returns and 21 days for electronic returns.
UK VAT-registered businesses that supply goods to other EU countries already submit ESLs.
From 1 January 2010 new rules will require the monthly submission of ESLs where the value of the supplies of intra-Community goods (excluding VAT) exceeds £70,000 in the current quarter, or any of the previous four quarters. This threshold will be reduced to £35,000 (excluding VAT) with effect from 1 January 2012.
New online system for reclaiming VAT incurred in other EU member states
A new electronic VAT refund procedure will be introduced across the EU for all claims submitted after 1 January 2010 to replace the current paper-based system. Businesses established in the UK will submit claims for VAT incurred in other EU countries on a standardised form through the UK Government Gateway, rather than direct to the Member State of Refund as at present.
What do you need to do now?
You need to consider whether your business will be affected by the changes and what changes to your accounting system will be required to implement these new rules from 1 January 2010, to account for VAT under the reverse charge, and/or to capture the information needed to submit ESLs. You should also consider obtaining the VAT Registration Numbers of regular business customers in other EC countries.
How we can help
If you would like more information about any of the topics covered in this article, please feel free to contact us.
Telephone: 020 8964 4420