VAT – Place of supply changes
HMRC have issued some further updates on the VAT place of supply rules. There are significant changes taking place to the VAT treatment of EU cross-border supplies of services from 1 January 2010. These changes will affect all businesses which 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.
The main changes are as follows:
- A major re-write of the rules for determining the place of supply of services within the EU. These changes significantly extend 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 account for VAT using the reverse charge mechanism.
- New reporting obligations for cross-border supplies of services. EC Sales Lists (ESLs) reporting requirements will be extended to include most cross-border supplies of services. These changes include a reduced time limit to submit ESLs and a reduction in the threshold (from 1 January 2012).
- Changes to the time of supply rules for reverse charge services from the time of payment to the earlier of when the service was completed or when payment is made. The changes will be introduced by secondary legislation later in the year.
- New streamlined process for claiming VAT refunds where businesses are charged cross-border VAT. What is known as the ‘Eighth Directive’ refund process will be streamlined and an electronic filing procedure introduced.
Businesses that are affected by the changes should consider any necessary revisions to their accounting systems, such as being able to account for reverse charge and holding information required to complete ESLs, as soon as possible.