Value Added Tax
| From | 1 Dec 2008 | 1 Jan 2010 | |
|---|---|---|---|
| Standard rate | 15% | 17.5% | |
| VAT fraction | 3/23 | 7/47 | |
| Reduced Rate | 5% | 5% | |
| Taxable Turnover Limits from 1 May 2009 | |||
| Registration - last 12 months or next 30 days over | £68,000 | ||
| Deregistration - next 12 months under | £66,000 | ||
| Annual Accounting Scheme | £1,350,000 | ||
| Cash Accounting Scheme | £1,350,000 | ||
| Flat Rate Scheme | £150,000 | ||
VAT: Change of standard rate
The standard rate of VAT will return to 17.5% from 1 January 2010. Targeted legislation will counter schemes that purport to apply the 15% VAT rate to goods or services to be supplied on or after the date that the rate returns to 17.5%.
Cross-border supplies – 2010 changes
1 January 2010 will see fundamental changes to the VAT treatment of EU cross-border supplies of services. The changes will affect the time and place of supply rules and the reporting requirements for business to business cross-border supplies of services.
Time of supply
From 1 January 2010 the time of supply, or tax point, for cross-border supplies of services will be driven primarily by when the service is performed, rather than at the time payment is made as at present. The new rules will distinguish between single and continuous supplies. For single supplies the tax point will be the earliest of service completion or payment. For continuous supply of services the tax point will be the earliest of the end of each contractual billing or payment period, or 31 December each year if there is no billing/payment period, or payment itself. These new rules will affect the time at which UK businesses must account for the reverse charge on services received from other EU member states and the posting of EU supplies to VAT returns. The changes will not affect the tax point provisions for UK supplies of services, so businesses could find themselves having to distinguish between domestic and EU supplies.
Place of supply of services rules
From 1 January 2010 the place of supply of services rules will be modified. All business-to-business supplies of services (subject to the exceptions below) will be accounted under the reverse charge provisions. The new rules aim to transfer the place of supply to the place of consumption, and endeavour to put a stop to taxpayers taking advantage of differing place of supply rules among EU Member States. The basic rule for supplies to non-business customers will remain unchanged, i.e. it will be where the supplier is established.
The new rules will not transfer the place of supply to the establishment of the taxable recipient in all cases, and there will continue to be exceptions to the new general rule. This is to confirm the principle of taxation as the place of consumption, where consumption may take place in a different country from the place of establishment of the customer.
As a consequence of this, services relating to land will still be deemed to be supplied where the land is situated. These include, among others, construction, surveying and the services provided by architects. Similarly, catering and restaurant services will be treated as supplied where they are physically performed.
Supplies of both business and non-business customers of cultural, artistic, sporting, scientific, educational and similar services, as well as valuation of and work on movable property, are currently taxed where the service is performed. There will be no change to the taxation of these supplies when made to non business customers. For supplies to business customers:
- from 1 January 2010, valuation and work on goods will be taxed where the customer is established; and
- from 1 January 2011, most supplies of cultural, artistic, sporting, scientific, educational and similar services will be taxed where the recipient is based. On the other hand, admission charges to cultural, artistic, sporting, scientific, educational and entertainment events will remain taxable where the event takes place.
There are further exceptions to the new general rule, and these are mainly connected to supplies of hire of means of transport.
Other businesses that should consider closely the effects of the new place of supply rules include suppliers and recipients of transport of goods, ancillary transport services and passenger transport services.
EC sales lists
In addition to the place of supply changes, EC Sales Lists (ECSL) will be introduced for the supply of services to businesses registered for VAT in other EU member states. ECSL currently only apply to the sale of goods to businesses registered for VAT in other EU member states where the value of such sales exceeds £11,000 per calendar year and are required to be submitted on a calendar quarterly basis, within 42 days of the quarter end.
The new rules will extend the requirement to complete ECSL to services supplied to businesses registered for VAT in other member states and will require businesses to record the value of supplies to each business quoting its VAT registration number and country code. ECSL returns will also have to be submitted within 14 days of the quarter end if submitted in hard copy, or 21 days if filed electronically.
The new rules also introduce the requirement for monthly ECSL returns for businesses supplying goods with a value in excess of £70,000 per quarter, but it is not yet clear whether businesses supplying goods and services will have the option to submit quarterly returns for services only.
VAT refund procedure
The 8th Directive refund procedure will also be modified from 1 January 2010. Currently, a business registered for VAT in any Member State that incurs VAT in another EU country is required to complete a hard copy form and send it together with a number of documents to the tax authority in the EU country where the costs were incurred. That Member State then refunds the VAT within six months from the date of receipt of the documents.
The new procedure will lead businesses established in the UK to submit claims for overseas VAT electronically on a standardised form to HMRC, rather than direct to the Member State where the costs were incurred.
It is believed that the new system will permit a quicker refund to claimants and, as a consequence of this, tax authorities will generally have four months, rather than six months, to make repayments. In addition, interest will be payable where Member States are late in making refunds.
Similarly, overseas businesses will make their claims for UK VAT through the electronic interface in the Member State where their business is established.
The new procedure will not apply to 13th Directive reclaims, which will remain hard copy based.
