Constable VAT Consultancy LLP

On 1 January 2010 important changes will be made to the rules regarding the cross border supply of services.  These are significant changes affecting both suppliers and customers.  Although 1 January may seem some time away, it is essential that all businesses ensure their systems will be able to deal with the new rules from the outset. 

Place of supply 

The new rules aim to ensure that VAT is paid in the country in which the service is ‘consumed’ rather than where the supplier is established.  The current basic rule for establishing the place of supply of a service is that VAT is due where the supplier has established their business.  From 1 January 2010, the new basic place of supply rule for business to business supplies will be where the customer is established (for services provided to non-business customers the rule will be unchanged ie it will be where the supplier is established).  As a result, UK businesses will be liable to account for VAT (under the reverse charge provisions) in respect of many services received from outside the UK. 

There will, of course, continue to be exceptions to the new rule and these are summarised below:

 Services currently treated as ‘supplied where performed’ 

There will be no charge to the current rules) for non-business customers, but  for business customers from: 

·          1 January 2010 valuation and work on goods will be taxed where the customer is established.

 ·          1 January 2011 most supplies of cultural, artistic, sporting, scientific, educational, entertainment and similar services will be taxed where the customer is established. However, supplies of admission to events under these headings will remain taxable where the event takes place. 

Land related services 

Land related services will continue to be treated as supplied where the land is situated.

Hire of means of transport 

From 1 January 2010 there will be a distinction between short-time hire (no more than 30 days or 90 days for vessels) and long-term hire.  For short-term hire the place of supply will be where the vehicle is put at the disposal of the customer.  For long-term hire the place of supply will be where the customer is established.  Further changes take place from 1 January 2013. 

Restaurant and catering services

 From 1 January 2010 these services will be treated as supplied where they are physically performed.  Restaurant and catering services carried out on board transportation will be treated as supplied at the place of departure. 

Intermediary services

 The place of supply for non-business customers will remain the same place as the underlying service being arranged.  From 1 January 2010 the services provided by an intermediary to business customers will fall under the new general rule. 

Transport of goods

 For business customers the new general rule will apply from 1 January 2010.  For non-business customers the place of supply will remain where the transport takes place or the place of departure for intra-EU transport.

 Intangible services (eg legal advice) 

For non-business customers outside the UK these services will be treated as supplied where the customer belongs. 

Passenger transport services, use and enjoyment provisions and electronically supplied services 

The current provisions will remain unchanged for non-business customers. Cross border supplies In most cases the business customer will account for VAT using the reverse charge procedure. 

Time of supply 

Changes to time of supply rules will have effect on and from 1 January 2010 and will affect businesses receiving cross-border supplies of services in the UK and accounting for VAT using the reverse charge. 

Current rules 

The time of supply is normally when the supplies are paid for, or the end of the VAT accounting period during which a service is supplied (if the consideration is non-monetary). 

From 1 January 2010 

For single supplies the tax point will be the earlier of the date the service is completed or paid for. For continuous supplies the tax point will be the earlier of the end of the month to which the bill or payment date relates, or the date payment is actually made.  If no payment is made and the supplies are not subject to billing or payment periods, the tax point will be 31 December. 

EC Sales List (ESL) 

Currently ESLs are only required in respect of movements of goods within the EU.  From 1 January 2010 ESLs will also be required where UK businesses supply services where the place of supply is the customer’s country. 

ESLs must be submitted calendar quarterly (monthly for goods, if certain turnover limits are exceeded), within 14 days for paper returns and 21 days for electronic submission.  ESL’s will include the following information: 

·          VAT registration of customer receiving the service (which should always be checked to ensure it is valid and current). 

·          The total value (excluding VAT) to each of these businesses. 

It is essential that businesses are prepared to submit these forms and that accuracy is ensured.  Under EU law it is possible for a supplier and customer to be held jointly and severally liable for tax in some situations and it has been suggested that where a UK supplier fails to submit an ESL then it is likely that the tax authority of the customer may seek to collect any tax that the customer fails to pay plus any penalties and interest thereon from a UK supplier using the mutual assistance law. 

The other key point regarding ESLs is that where a customer in the UK fails to account for VAT on services imported from an EU Member State the information on the supplier’s ESL will highlight this failure to HMRC, creating a risk of assessment penalties and interest charges.