Crossing the VAT channel
 A package of measures is being introduced to ‘simplify’ and modernise the VAT system for cross-border trading and to counter fraud with effect from 1 January 2010 across the EU.
Who will be affected by the changes?
The changes will affect all businesses:
- supplying services to overseas businesses
- receiving services from overseas businesses
- supplying goods to other EU countries
- that want to reclaim VAT incurred in another EU country.
The measures include changes to:
- the basic place of supply of services rules
- the European Sales List (ESL) reporting requirements
- the refund procedure for VAT incurred in other EU Member States.
Place of supply of services rules
Changes will be made to the complex rules on the place of supply of services rules which determine the country where a supply of services is made and where any VAT due is payable. The rules also determine, if VAT is due on a supply, whether it should be accounted for by the supplier or their business customer.
The change is that, as far as possible for business to business supplies, VAT will be due in the country where the customer is based, as opposed to the current rule of where the supplier is based.
The basic rule for supplies to non-business customers will remain unchanged in that it will be where the supplier is based.
As now, there will be exceptions to these general rules but not necessarily the same exceptions, so it will be vital for any business involved in cross border services to review their position.
The changes will be phased in over the next few years commencing 1 January 2010.
EC Sales Lists for services
UK VAT registered businesses that supply services to EU VAT registered 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.
This means businesses will need to start collecting their customers’ VAT registration numbers now.
EC Sales Lists for goods
UK VAT registered businesses that supply goods to other VAT registered businesses in other EU countries already submit ESLs. However from 1 January 2010 new rules will:
- reduce the time available to submit ESLs from the current 42 days in line with the limits above
- 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.
VAT refund procedures
A new electronic VAT refund procedure is being introduced across the EU from 1 January 2010 to replace the current paper based system.
From that date UK businesses which are entitled to a refund of VAT paid in another EU member state will submit refund claims electronically on a standard form to HMRC rather than direct to the Member State where the VAT was suffered.
For advice or a review on how these and other VAT changes may affect your business, please do contact us .
Disclaimer - for information of users: This newsletter is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this newsletter can be accepted by the authors or the firm.
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