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VAT cross border supplies: Are you ready for 2010?

17 September 2009

If you supply cross-border services there are important VAT changes coming into force on 1 January 2010 that you must be aware of.

Place of supply

For supplies you make to a VAT-registered business in another EU country, the ‘general rule’ will be that for VAT purposes you will not charge the customer VAT nor issue a VAT invoice. The customer will have to artificially charge itself VAT on the transaction, i.e. the current position is reversed.

If the customer does not have a 100% VAT recovery rate this may lead to the customer suffering an additional cost and may result in existing arrangements – for example some forms of outsourcing – being re-examined, as they may no longer be VAT efficient.

There are exceptions to this general rule, so advice should be taken to determine the correct VAT treatment of each supply, and further changes will come into force in 2011, 2013 and 2015.

Time of supply

The time of supply for a single supply will be the earlier of:

For continuous supplies, the time of supply will be the earlier of:

EC Sales Lists

EC Sales Lists (ESLs) – currently only required for intra-EC supplies of goods to VAT-registered persons where certain thresholds are exceeded – will be extended to supplies of services to such persons. ESLs will be required monthly for goods, and the time limit within which they have to be submitted to HM Revenue & Customs (HMRC) will be reduced.

Obtaining refunds

A new electronic VAT refund procedure will be introduced under which businesses claim overseas VAT by submitting an electronic form to HMRC. Tax authorities will then have four months to make repayments with interest being payable where, through their fault, the time limit is not complied with.

Time is running out

There is not much time left before the changes come into force so businesses need to be taking steps immediately to prepare for these changes.

There are concerns that businesses may not be able to adapt their accounting and record systems in time, although HMRC has said that where businesses can demonstrate they have taken ‘reasonable care’, they will not be penalised if ‘initial teething problems produce some inadvertent inaccuracies’.

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Tom Wilde

Solicitor
T: 03700 86 8713
I: +44 (0)118 965 8713
E: tom.wilde@shoosmiths.co.uk