News
December 2009
VAT Update
Major VAT changes in 2010
New Years Day is a big date in the VAT calendar!
If you are VAT registered
As you probably know the standard rate of VAT was reduced from 17.5% to 15% last year. The rate is due to return to its former level of 17.5% from 1st January, and as a VAT registered business you must apply the 17.5% rate to all supplies of standard rated good s and services made on or after that date
If your annual turnover is £100k or more
From 1st April 2010, all businesses with an annual (VAT exclusive) turnover of £100,000 or more must file their VAT Returns online AND pay any VAT liabilities due by electronic means. Any businesses registering for VAT after 1st April regardless of turnover will have to file their VAT online also.
If you trade with overseas businesses
Important changes are being made on 1 January to what are known as the 'place of supply' rules, which are relevant to any business that either buys or sells services outside the UK. The new rules will reduce the number of transactions where VAT is charged by a UK business to its overseas business customers, and also where UK businesses are charged VAT by suppliers in other EU countries. The VAT on many transactions will instead be dealt with by customers on their own VAT returns through what is known as the 'reverse charge' procedure.
The changes are good news for many businesses because they will reduce the number of transactions where VAT is paid to an overseas supplier and needs to be claimed back from the tax authorities in that country. Many tax authorities have a bad record of repaying these claims.
The new rules also mean that an EC Sales List will need to be completed each calendar quarter by many UK businesses that sell services to businesses in other EU countries. This return has been in place for many years in relation to the sale of goods but not for services. It will need to be completed on a calendar quarter basis within fourteen days of the end of the quarter. An extra seven days is given if the return is filed online.
Example of new rules:
A UK business that provides management services to an overseas parent company or any other overseas business customer (EU or non-EU) will currently charge 15% VAT on the value of the services provided. This is because the 'place of supply' for such services is where the supplier is based i.e. UK.
After 1 January, the 'place of supply' changes to the country where the customer is based, so no UK VAT will be charged. The customer will instead account for the tax on his own VAT return using the reverse charge calculation. This calculation will be based on the value of the service multiplied by the rate of VAT that applies in his own country e.g. 25% for Sweden, 16% for Spain. Assuming the customer is able to fully reclaim input tax, he will claim the same amount of tax on the return, to leave a nil payment effect.
If you could be affected by the new rules, then contact us for further advice.
