VAT – Changes to ‘place of supply’ rules
HMRC have released a consultation document which contains the draft legislation for planned changes to the VAT place of supply rules which will take effect between 1 January 2010 and 1 January 2013. There are some further planned changes in 2015 but these are not included in the draft legislation. Businesses are invited to comment on the draft legislation before 13 February 2009.
The main changes relate to supplies of cross-border services and to new reporting obligations. From 1 January 2010 the current rules that define where the place of supply of services lies will be rewritten. The current default position, with many exceptions, is that the place of supply for business to business services is where the supplier is established, this will change to the place where the recipient of those services is based. In effect this significantly extends the current ‘reverse charge’ mechanism which applies to certain services where the customer accounts for the VAT due. Going forward, most business services will be taxed in the country where they are received and the customer will be responsible to account for any VAT due.
The new rules will result in an extended EC Sales List (ECL) to include services as well as goods which move around the EC. The current six week filing deadline will be reduced to three weeks for electronic filing and just two weeks for paper declarations.
These are significant changes and will affect a large number of businesses. Any business that supplies services to EU customers will need to be aware of these changes and begin looking at how to ensure that they are compliant from 1 January 2010. These changes are likely to include modifications to accounting systems, procedure manuals and processes.