Tax & Accounting News

New VAT rules from 2010

14/08/2009

A new package of changes to VAT, agreed by the EU member states, will be introduced in stages between 2010 and 2015. The aim of the changes is to bring greater harmony to the rules across the EU and ensure VAT is generally charged in the place of the consumption of the service. There are a number of points regarding the new rules which businesses need to be aware of.

Place of supply rules
For business-to-business supplies, the new basic rule from 1 January 2010 will be that services are supplied where the customer is established – as opposed to the current position that services are supplied where the supplier is established. For suppliers, this may be good news as they will lose their responsibility of accounting for VAT, but UK businesses buying in services from abroad are likely to face an increase in costs, particularly in the case of exempt or partially-exempt businesses which may have to register for VAT for the first time.

From 1 January 2013, the leasing or long-term hiring of transport vehicles to non-business customers will be treated as taking place where the customer is resident, and from 1 January 2015 the basic rule for intra-EU supplies of telecoms, broadcasting and other electronically-supplied services will be that the service is treated as being supplied where the customer is established or usually resides.

The reverse charge provisions currently in force in the UK and many other member states – which allow a foreign supplier not established in the country concerned to avoid a VAT registration by having the bill sent to the customer instead – are set to remain in place.

Time of supply rules
From 1 January 2010, the time of supply rules will change for cross-border services where VAT must be accounted for under the reverse charge procedure. The tax point will depend on whether the supply is single or continuous – in the case of a single supply the tax point will be the date of completion of the service or, if earlier, the date of payment or part-payment. For a continuous supply the tax will apply at the end of each billing period or, if earlier, the date of payment or part-payment. Where there has been no tax point during a calendar year, there will be a compulsory tax point on 31 December.

EC Sales Lists requirements
EC Sales Lists (ESLs) record the value of supplies made to customers in other EU member states. Currently ESLs are only required in relation to supplies of goods, but from 1 January 2010, they must also be submitted in relation to the supplies of services that are subject to the reverse charge. The time limit for introducing ESLs will also be reduced from 42 days after the end of the reporting period to 14 days (or 21 for electronic submission).

ESLs must show the total value of the supplies made to each customer, together with the customer’s VAT number and country code. An ESL will normally have to be submitted for each calendar quarter, but businesses can opt for monthly submission. Penalties can be charged for failing to submit ESLs, but HMRC has promised to be lenient to companies which are encountering these rules for the first time, but are taking reasonable steps to comply with them as soon as possible.

EU refund procedures
One piece of good news concerns UK businesses which incur VAT on the cost of goods or expenses in another EU member state. Currently this can be recovered only by submitting a claim to the VAT authority in that member state, which can be time-consuming, expensive and may not lead to payment for many years. From 1 January 2010, businesses will be able to make electronic claims straight to HMRC, using standardised codes which should reduce the amount of information required. Claims can be made for a whole calendar year or for shorter periods of at least three months, and can be submitted up to nine months after the end of each calendar year.

For more information or advice on the proposed changes, please contact us.

 

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