VAT - are you preparing for new 'place of supply' rules?
Major changes in VAT legislation are on the way and it is essential that all businesses are prepared in advance to meet the requirements and avoid any possible financial penalties.
From 1st January 2010 there will be a change to the basic rule regarding the place of supply of services. This is the rule which identifies the country where services are deemed to have been 'supplied'. Currently, if a supplier has established its business in the UK, then the place of supply will be deemed to be the UK and any services charged for will be subject to UK VAT. There are, however, numerous exceptions to this rule. Establishing whether a service falls under one of the exceptions – and if so, which one – constitutes a major headache for businesses.
The new basic rule states that if the recipient is a business customer then the place of supply is the country where the recipient belongs. Therefore, when the new rule applies, if a UK business supplies training services to a business customer in Spain and delivers the training in France then the place of supply will be Spain and the reverse charge will apply. The existing rules dictate that the place of supply is France, with the result that the UK business may need to register in France.
The new basic rule also states that if the recipient is not a business customer then the place of supply is the country where the supplier belongs.
As is now the case, there will be some exceptions, but these exceptions are in many cases different from those currently in force. It will be important to ascertain just how your business will be affected.
The changes may affect businesses which receive services from abroad. Such businesses may already account for VAT using the reverse charge mechanism, but may in future have to do this in situations where the reverse charge currently does not apply.
Another significant change, which is being introduced as an EU anti-fraud
measure, relates to EC Sales Lists. Businesses supplying services to
commercial customers in other EU countries will be affected. Currently,
EC Sales Lists are required only for supplies of goods. Although this
comes into force on 1st January 2010 you should be preparing now to
collect the necessary data.
The Essential Guide to
UK VAT and International Services
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