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CROSS BORDER SERVICES FROM 1 JANUARY 2010 |
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See VM ¶9680 The overall aim of the VAT package is to tax the supply of services in the place where they are consumed, to simplify administration and to reduce VAT fraud. The package comprises: - changes to the place and time of supply of cross-border services; - new reporting requirements – including the introduction of EC Sales lists for services; and - a new system for recovering VAT incurred in other EC countries. There is a distinction between services provided to businesses and those provided to consumers. Business to business services (“B2B”) See VM ¶9684 From 1 January 2010, the basic rule for determining the place of supply of B2B services will change from being the place where the supplier is located to being the place where the customer is located. There will, however, be a number of exceptions, mainly in transport services, to this basic rule. The main changes will be implemented on 1 January 2010. For cultural, sporting, scientific and educational services, the change will be introduced on 1 January 2011. The effect of this is to make most intra–EU services received by business customers subject to the reverse charge, whereby the customer accounts for VAT on the service in his country. Business to consumer services (“B2C”) See VM ¶9680 For supplies of services B2C the basic rule for the place of supply will continue to be the place where the supplier is established. From 1 January 2015, the place of supply of intra-EU B2C supplies of electronically supplied services, telecoms services and broadcasting will be where the customer is established, or usually resides. The European Commission is to report on the feasibility of the new B2C rules before they enter into force. Other services See VM ¶9744, ¶9794 The existing exceptions to the basic rule, such as for land-related supplies, will remain, with the exception of valuations of, and work on, moveable property, which will be taxed where the customer is located, rather than the place of performance. This will be a welcome change for businesses involved in cross-border maintenance contracts. Time of supply See VM ¶9700 The rules on the time the VAT is due under the reverse charge are also changing on 1 January 2010, Instead of the date of payment triggering the requirement to account for VAT, the date VAT is due will be the earlier of: - the date the service is completed; or - when payment is made. For continuous supplies the time of supply will be linked to payment periods, but where no payment is made or invoice issued in a 12-month period, a deemed tax point will occur at the end of the calendar year. EC sales lists (ESLs) See VM ¶9810 Under the new rules from 1 January 2010 businesses supplying services to businesses which are liable to the new reverse change procedures will have to submit ESLs for the first time. They will therefore need to ensure they have the customer’s VAT number. If the customer is a business which is not VAT registered there is no requirement to record the transaction on the ESL, but it will still need to be recorded on VAT returns. Businesses which supply goods to the EU are already required to submit ESLs. If they supply both goods and services the same form can be used. The new filing dates require submission within 14 days, or 21 days if filing electronically. Penalties will be imposed for failure to submit ESLs, or for late filing. Overseas VAT reclaims See VM ¶9845 The paper system for claims for the refund of VAT incurred in other EC countries is to be replaced by an electronic system via the customer’s member state. The claim will then be passed to the member state where the VAT was incurred for refund. A welcome change is that the time limit for making claims will be extended by 3 months to 9 months from the end of the calendar year in which the VAT was incurred, so claims must be made by 30 September. Member states must refund within 4 months of receipt and interest is due if payment is late. Impact on businesses The main impact of the changes will be the need to ensure that accounting systems and procedures are in place to deal with the new requirements. Businesses making supplies of services to other EU states will need to: - review contracts (particularly ‘global’ contracts where local services are supplied to a client with multiple EC locations under a single contract) to determine where such services will be deemed to be received. HMRC have stated that they aim to provide further guidance on what degree of burden will fall on suppliers in determining whether a supply is being made for the benefit of one fixed establishment or for another; - ensure they have capture details, such as customer VAT registration numbers, or have other evidence of a customer’s business status; - ensure they are clear in which jurisdiction a client is receiving a service where customers have one or more business establishments; and - ensure they are ready to submit ESLs by 1 January 2010. Traders receiving supplies of services from EC businesses will need to analyse whether they are required to account for UK VAT on such services. For some there will be changes, for example: - up to now where a service was received for example by a charity in relation to its non-business activities, no reverse charge was required, but this will change after 1 January; - businesses which cannot recover all their VAT may find that they suffer additional VAT costs because services they used to buy VAT-free from providers outside the EU, or from suppliers established in jurisdictions with lower VAT rates, are now more costly because the reverse charge applies and UK VAT is due; and - some of the old difficulties in distinguishing between services that were already subject to the reverse charge before 1 January 2010 (such as consultancy and data processing) and those that were not (such as management and administration services) will disappear, as all such services supplied B2B will be subject to the reverse charge. News of further HMRC guidance will be reported in updates to VAT Memo as they are announced. |
