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VAT: Cross-border VAT changes 2010

This article provides further information on the changes announced in Budget Notes 74, 75, 76 and 77 on 22 April 2009 on the Cross-border VAT changes being introduced from 1 January 2010. It should be read in conjunction with Revenue & Customs Briefs 53/08 and 02/09 relating to EC Sales Lists (ESLs).

Background

The changes to the Cross-border VAT rules announced at 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, adopted by EU Finance Ministers in February 2008 and December 2008 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. Whilst some issues of interpretation and implementation of the new rules, which need to be consistently applied across the EU, remain under discussion, HM Revenue & Customs (HMRC) recognise that business needs certainty at the earliest possible stage in order to be ready for January 2010. This article summarises how the changes will impact on business and provides links to initial guidance on how HMRC expects these to be implemented in the UK, highlighting those areas where uncertainty remains. This guidance will be updated as outstanding issues are resolved with changes being highlighted in the annex at the end of this article. Departmental guidance and the relevant Public Notices will be updated to reflect the changes.

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.

Notice 741A – Place of supply of services explains the new rules which take effect from 1 January 2010 to determine the place of supply of your services and who must account for VAT on the supply of those services.

Draft legislation was published with a consultation document on 22 December 2008 and the responses to the consultation were published on 22 April 2009.

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. For Draft legislation and further guidance see Time of Supply guidance (PDF 40K). HMRC is aware of the practical difficulties the new rules may present and are informally consulting with business groups to minimise additional burdens while remaining consistent with EU obligations. Comments on this are welcome and should be addressed to the email address given at the end of this article.

New ESLs 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.

Further guidance is now available in the ESL guidance (PDF 89K) and in Revenue & Customs Briefs 53/08 and 02/09.

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.

For a guidance note including draft legislation see the Refund scheme guidance (PDF116K), and an impact assessment is also available.

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.

If you have a question about these changes contact the VAT Helpline.

VAT Helpline

Annex - updates to initial guidance

1 May 2009 - initial guidance published

22 July 2009 - Place of Supply and Time of Supply rules: paragraphs 4.8 and 4.10 amended; new paragraphs 4.11 and 4.12 added.

22 July 2009 - ESLs: amendments and additions to the Questions and Answers in part 4. See ESL guidance (PDF 77K)

9 December 2009 - The Secondary legislation and relevant Impact Assessment is now available for the cross-border time of supply changes, revised EC Sales Lists requirements and the EU VAT Refund Scheme. This is a consolidated SI including other changes to the regulations effective from 1 January 2010 but not connected to the Cross-Border changes. See SI 3241 (Opens new window) and SI 3241 (EM)(PDF 307K) (Opens new window).

21 December 2009 - Further guidance has been issued on EC Sales Lists for Commodity Trading
Commodity trading: Summary of January 2010 European Sales List (ESL) requirements (PDF 17K)