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Businesses face a number of VAT changes on 1 January

3rd December 2009
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Page 48, 3rd December 2009 — Businesses face a number of VAT changes on 1 January
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Which of the following most accurately describes the problem?

2010, which could have a 'triple-whammy' effect of higher admin costs, increased VAT liabilities and reduced sales.

Words: Stephen James

Standard rate of VAT returns to 17.5% The temporary reduction in the VAT standard rate to 15% ends on 31 December 2009. Once again, price lists, stationery and online systems will have to be revised, reprinted and reprogrammed. Note, however, that the normal VAT time of supply rules apply when there is a change in rate, except that businesses can choose to split supplies spanning the date of change into their respective parts — each subject to the appropriate rate. Supplies made before the change of rate can be invoiced at the old rate after the change.

Her Majesty's Revenue and Customs (HMRC) has announced a concession in relation to the change, which some businesses will find helpful. Certain businesses which will operate after midnight on 31 December 2009 will be allowed to account for VAT at 15% until the earlier close of trading session, or 6am on 1 January 2010. Excluded are arrangements that seek to obtain an advantage by pre-paying for goods or services. Opportunities to save VAT by pre-paying for goods or services before 1 January 2010 are limited, because of special 'anti-forestalling' rules.

However, depending on the circumstances, it might be possible to achieve some savings, and specialist advice should he taken.

Cross-border services 'reverse charges' Another important change on 1 January 2010 will affect companies that either supply services to, or buy in services from, other countries. In some cases, this could significantly increase VAT liabilities.

It's all to do with where the supply of a service takes place. Currently, the basic rule for business-to-business services is that they are supplied where the supplier is established.

For example, if a UK company provides management services to a French subsidiary, the UK company must account for VAT in the normal way. From i January 2010, the opposite will apply, with the basic rule being that services are supplied where the customer is established. So, a UK company that provides management services to its French subsidiary will no longer need to account for VAT; the French company will have to do this on what is known as the 'reverse charge' basis.

Exceptions to the rule

The position for services in relation to the transport of goods will change. Currently, this is an exception, with treatment depending on the exact circumstances, but from 1 January 2010 these will Come under the new basic rule and services will be treated as supplied where the customer is established.

Getting the timing right

From 1 January 2010, the tax point for cross-border services treated as being received where the customer is established wil also change.

or a single supply, the tax point will be whichever is earlier e date of completion of the service, or the date of payment (or part-payment). This new rule could be problematic for bu. messes whose systems cannot identify the date of conipletion of a service, and once again specialist advice should be sought.

For continuous supplies, the tax point will be the earlier of the end of each periodic billing period or payment period, or the date of payment (or part-payment). In the absence of any such tax point in the previous 12 months, there will be a compulsory tax point on 31 December each year.

More red tape

As if all this is not enough, UK businesses that supply cross-border services to other EU member states that are treated as received where the customer is established will, from 1 January 2010, have to submit quarterly, or, if they choose, monthly EC Sales • Lists detailing those services.

This is despite the fact that they do not even have to account for VAT on such services.

And it gets worse. The submission deadline will he only 14 days after the end of each period (21 days if the forms are submitted electronically).

Is there any good news?

If a UK business incurs VAT on the cost of goods or expenses in another EU member state, this can currently only be recovered by submitting a repayment claim to the VAT authority in that member state.

This can be time-consuming, expensive, and may not lead to payment for many years.

From 1 January 2010, UK businesses will have to make electronic repayment claims to HMRC. Standardised codes should eliminate or reduce the amount of information that needs to be provided in another language, and there will be no requirement to submit original invoices with the claim. This should simplify and accelerate the repayment process, particularly as the tax authorities have been given a shorter time to make the repayment, and must pay interest if they're late.

There is also some good news for VAT-registered businesses which 'import' goods from other EU member states.

Such businesses have to submit Intrastat Arrivals declarations if the total value of Arrivals exceeds a threshold in each calendar year (£270,000 for 2009).

For 2010, subject to final parliamentary approval, the threshold will be more than doubled to £600,000. This will take a significant number of businesses out of the reporting net. However, declarations also have to be submitted where the value of goods dispatched to other EU member states exceeds a set threshold (£270,000 for 2009). For 2010, this will be reduced slightly to £250,000.

More changes ahead

Further changes are already scheduled for 1 April 2010. From that date, all existing businesses with a VAT-exclusive turnover of £100,000 or more, and all newly VAT-registered businesses, will have to file VAT returns online and pay VAT liabilities electronically. In many cases, this will involve changes to systems and perhaps a need for new software.

There are several more changes in the pipeline over the next few years, and the supply changes outlined here are part of a series of changes planned up to 2015.

Tags

Organisations: European Union
People: Stephen James

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