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Doing Business in the EU - VAT

Jane Roffey, VAT Consultant

A Cautionary Tale

A taxpayer delivered goods (free of VAT) to his customer in another member state of the EU without establishing that the customer was registered for VAT. As a result, the customer’s VAT number was not shown on the sales invoice (although the company claimed it had been shown on the delivery note). The company received an assessment from HMRC and has lost an appeal – in the High Court – against the assessment.

For all sales to other member states of the EU, YOU MUST show your customer’s name and VAT number on the sales invoice – otherwise be prepared either to charge your customer UK VAT, or to pay HMRC next time you have a VAT inspection.

TIP – obtain your customer’s EU VAT number as soon as you accept the order.

Do you incur VAT in other member states of the EU?

If so, you may have been put off recovering the tax because of the cumbersome paper based procedures used by the member states and the requirement to submit a certificate of status.

From 1st January 2010 there will be a new, electronic, system. Although claims from that date will still be determined according to the rules of the member state concerned there will be one point of submission.

Under the new system, claims will be sent to the Member State for Refund (“MSR”), via the taxpayer’s own tax authority. So – a UK based company will submit a claim to the UK where it will be processed, within a predetermined timescale, according to the rules of the MSR.

There will be an extended period of 9 months for submission of the claim, a uniform minimum amount will be introduced and timescales will be adhered to. Interest will be paid if the timescales are not met.

TIP: Make sure you retain invoices for all business supplies received in other member states – claims should be easier in future.

For More on Doing Business Overseas…..

Business to Business (B2B)

If you supply services to overseas businesses then you will be affected by changes to be introduced with effect from 1st January 2010.

Currently, the general rule is that services are treated as supplied where the supplier belongs although there are exceptions. So the position varies, depending on the services that are being supplied – in some cases the services are subject to VAT in the supplier’s member state (and clearly shown on the invoice, in the appropriate currency), and in other cases they are subject to VAT in the customer’s member state (using the “reverse charge” procedure whereby the recipient accounts for the VAT and then recovers it, if it has been incurred for the purpose of the business). 

After 1st January 2010, the general rule will be that, for supplies of B2B services, tax will be due, and accounted for, by the customer, using the reverse charge.

There will still be the occasional exception as these EU wide arrangements are not due to be finalised until 2015. Exceptions will include transactions relating to land – which are treated as taking place where the land is situated; hire of means of transport – which will depend on whether the hire is short or long term and cultural, artistic and sporting services – the treatment of which will be clarified from 2011. For a full list, or to confirm the treatment of specific services, please take advice.

TIP: Start obtaining the EU VAT number for all regular customers and contacts.

European Sales Lists (“ESL”)

Goods

Businesses supplying goods to the EU will be familiar with these supplementary forms which provide member states with information to enable them to check that VAT is being correctly accounted for.

From 1st January 2010, however, submission deadlines will be reduced to 14 days (21 days for electronic submission) and monthly submission will be required where supplies exceed £70k per quarter. From 1st January 2012 the threshold for submission will be reduced further.

TIP: Check now that your systems can cope with the new deadline.

Services

With effect from 1st January 2010, businesses supplying services to customers in other member states will also have to complete ESLs. Forms will need to be completed quarterly and submitted within 14 days (21 days for electronic submission) of the quarter end.

TIP: View Form VAT 101 at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_Forms&propertyType=document&id=HMCE_CL_000048 and obtain the VAT registration numbers of regular customers now.