Updated VAT Notice – Place of Supply rule changes
As many readers will be aware, significant changes are taking place to the VAT treatment of EU cross-border supplies of services from 1 January 2010. These changes will affect all businesses that supply or receive cross-border services. There will also be changes to the process for claiming VAT refunds in EU countries and EC sales lists.
HMRC have issued a significantly updated version of VAT Notice 741A which deals with the VAT place of supply rules.
One key change significantly extends the reverse-charge mechanism to cover most ‘business to business’ supplies. This means that in most cases services will be taxable in the EU member state of the customer who will need to account for VAT using the reverse charge mechanism. This means that the supplier does not add VAT to his invoice but he must complete an EC Sales List (form VAT 101) to report cross-border sales for each quarter or month.
Affected businesses should consider any necessary changes to their accounting system such as being able to account for reverse charge.