VAT CHANGES: WHAT YOU NEED TO KNOW

VAT changes in January 2010 impact any business trading with other EU countries.

New VAT rules were introduced at the start of 2010 relating to the supply of services across the EU. Instead of the current basic rule that the place of supply of services is treated as being where the supplier is established, the place of supply for most services will shift to the country where the customer is established.

There is also a requirement to file your VAT return online from April 2010 for any business turning over more than £100,000 annually.

What does this mean and why should you care?

For the vast majority of cross-border B2B transactions, there will be no VAT charged on the invoice. But the customer's VAT number must be shown on the face of the invoice and there are changes to the reporting requirements for both customers and suppliers.

Imports: businesses buying services from overseas

Basically, in most cases, a UK business that buys services from a supplier in another EU country will have account for UK VAT under what is known as the ‘reverse charge’ provisions.

This means that the recipient will need to charge itself VAT on the value of services received.

What? Charge yourself VAT?

Ok, the reality is that no money actually changes hands. You simply enter the VAT payable in box 1 of the VAT form and, as long as it’s fully claimable, you also add it to the VAT on purchases in box 4. Net result: no money changes hands. The net sale is shown in both box 6 and box 7.

Exports: businesses selling services overseas

UK businesses that supply services to customers in other EU countries will need to obtain the customer’s VAT registration number and show it on the invoice. They will also have additional quarterly reporting obligations (this is already the case for goods) or monthly if sales exceed £70,000 per quarter. These are known as EC Sales Lists and while there is nothing to pay, you can be fined for late or incorrect filing.

EC Sales Lists  

The ‘simplification’ of intra-community VAT rules from 1 January 2010 bring a certain amount of added bureaucracy if you buy or sell services from/to elsewhere in the EU.

 

Most services sold from a VAT-registered business to a VAT-registered business in different EU country are now deemed to be supplied at the customer’s location, and are subject to the reverse charge system, meaning that the customer is responsible for accounting for the VAT.

 

If you buy VAT-able services and you are not charged VAT, you will have to show the VAT as both coming in and going out on your tax return (box 2 and box 4). These entries cancel each other out but you have to make them.

 

If you sell VAT-able services but do not charge VAT to EU-based customers (by including the customer’s VAT number on your invoice), you will need to complete an EC Sales List either quarterly or (if the value exceeds £70,000 per quarter) monthly. Deadlines have been tightened to 21 days for EC Sales Lists filed online (14 days for paper returns).

 

It is essential that affected businesses have systems in place before the commencement of the new rules to ensure they are able to comply with these additional requirements and to avoid penalties. 

New refund procedure for VAT incurred in other EU countries

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.

Online VAT filing 

From April 2010, any business with sales of more than £100,000 must file its VAT return electronically. This is simple and secure, with the added benefit that you can be sure the return has been filed correctly.

We can file your VAT return online for you but you need to authorise us to do so. Ask us how.

The above is a very brief summary of some of the changes introduced in recent legislation.

For more information, speak to your accountant or contact us.