Cross-border VAT: 2010 changes
The changes to the Cross-border VAT rules announced in the 2009 Budget represent a significant reform of the VAT regime applying to services and introduce important changes to the intra-EU reporting regime for goods. These changes will:
• modernise and simplify the current rules relating to cross-border supplies of services
• make the recovery of VAT on purchases made in other EU countries more efficient
• help to counter VAT fraud
To comply with the new rules, businesses will need to make fundamental changes to their current VAT accounting and reporting processes in order to be ready for 1 January 2010. A brief summary of the new rules (the VAT Package) is given below which businesses need to be aware of in order to be ready for January 2010.
Who will be affected by the changes?
• Businesses supplying services to overseas businesses.
• Businesses receiving services from overseas businesses.
• Businesses supplying goods to other EC countries.
• Businesses that want to reclaim VAT incurred in another EC country.
What are the changes, and when will they be introduced?
Changes to the Place of Supply Rules
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.
Services provided to non-business customers will still generally be liable to VAT in the country of the supplier.
As now, there will be changes to these general rules. The changes will be phased in on 1 January 2010, 1 January 2011, 1 January 2013 and 1 January 2015.
Changes to the Time of Supply Rules
The time at which VAT must be accounted for under the reverse charge will change on 1 January 2010. The changes will be introduced by secondary legislation later in the year.
New ESLs (EC Sales Lists) for services and changes to ESLs 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:
• Reduce the time available to submit ESLs in line with the limits above.
• As an anti-fraud measure, 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.
Changes to the procedure for obtaining refunds of VAT paid 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 businesses need to do now? Businesses need to consider whether they will be affected by the changes and what changes to their 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. They should also consider obtaining the VAT Registration Numbers of regular business customers in other EC countries.
We at RKG Consulting will be pleased to assist our clients and contacts prepare for these significant changes. For further information or clarifications please contact us.
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