Budget Comment 2009

2010 - a big year for football and VAT

A number of measures have been announced which will introduce the so called EU 'VAT Package' into UK legislation. The VAT Package is intended to simplify and modernise the VAT system for cross-border trading and to counter fraud.

Place of supply

From 1 January 2010, there will be a number of significant changes to the VAT treatment of services supplied cross-border.
The key change from that date is that the basic place of supply for services supplied to a business will become where the business customer is established. Supplies to non-business customers will continue to be treated as being made where the supplier belongs. There will be exceptions to the basic rule, for cultural, sporting, scientific, educational and similar services, although there will changes to the treatment of such services from 1 January 2011.

The place of supply of land related services will be unaffected by this measure, and will continue to be the place where the land is situated.

There will also be other changes to the VAT treatment of services from 1 January 2010, with further changes from 1 January 2011 and 1 January 2013.

Time of supply

Also from 1 January 2010, the time at which the supply of cross-border services is treated as taking place will change. This will affect the time that any VAT due should be accounted for (also referred to as the tax point). Currently the tax point for services received from overseas is the date that the supply is paid for.

For most services, the tax point will become the earlier of when the service is completed or when it is paid for.

For continuous supplies of services, such as leasing, the tax point will be the earlier of the end of each billing or payment period and the date on which payment is made. Where such services are not subject to billing or payment periods, the tax point will be 31 December each year unless a payment has been made beforehand, in which case the tax point will be the payment date.

EC Sales Lists (ESLs)

A new reporting requirement for businesses providing services to business customers in other EU countries will be introduced from 1 January 2010. This measure will require suppliers to submit quarterly declarations detailing the VAT registration numbers of the businesses to whom they have supplied their services.

Further changes were announced which reduce the current time limit for submission of ESLs in relation to supplies of goods to other EU countries from the current 6 weeks down to 14 days for paper submissions or 21 days for electronic submission. There will also be a requirement to render monthly ESLs when the value of goods supplied exceeds £70,000 in a quarter.

VAT refund procedure

A new electronic VAT refund procedure will be introduced from 1 January 2010. This change will replace the existing paper-based system. It will enable a UK based business to submit claims for a refund of overseas VAT directly to HM Revenue & Customs (HMRC), rather than directly to the tax authority of the country where the VAT was incurred. The deadline for filing claims will be extended from the current six months to nine months and the tax authority will be required to make payment within four months, rather than the current six months. Where the repayment deadline is not met, tax authorities will have to pay interest to claimants.

Summary

These measures will have considerable ramifications for all businesses which supply or receive services cross-border. While the changes to the VAT refund procedure will be welcomed by businesses, the requirement for service providers to submit declarations detailing supplies made to business customers elsewhere in the EU will be an added administrative burden. Businesses will also need to review the current VAT treatment of services supplied and received cross-border, and it is likely that IT and accounting system changes will be necessary in order to comply with the new VAT rules and reporting requirements.