There are a number of changes which will affect many businesses from 1 January 2010. Here is a quick summary of the key changes.

All Businesses

Change of VAT Rate

 The standard rate of VAT goes back to 17.5% on 1 January 2010. The new VAT fraction to use when a price is stated as being inclusive of VAT is 7/47. This change will affect all VAT registered business that make standard rated supplies of goods or services. Accounting systems will need to be amended, so that all invoices issued on or after 1 January 2010 use the new rate of VAT unless the supply was made more than 14 days beforehand, or payment was made before 1 January 2010. 

 Compulsory On-Line Filing of VAT Returns and Electronic Payment of VAT

 With effect from VAT periods commencing on or after 1 April 2010 existing businesses with an annual turnover of £100,000 or more will have to file their VAT Returns on-line and pay their VAT by electronic payment. The same rules also apply to all new businesses (regardless of turnover) that register for VAT on or after 1 April 2010. Other businesses will need to follow the compulsory on-line filing at a later date which has yet to be confirmed.

 Businesses Trading Outside The UK

 An increasing number of clients make supplies outside of the UK. The following changes will apply to them:

European Community (EC) Services

 There have been a number of changes affecting how EC services are taxed. There is also the requirement for businesses that supply services to EC businesses to submit an EC Sales list and there is a new system for recovering any VAT that is incurred in other EC countries.

Business to business services (B2B) – where one business is invoicing another business

 From 1 January 2010, the basic rule for determining the place of supply of B2B services will change from being the place where the supplier is located to being the place where the customer is located. There will, however, be a number of exceptions, mainly in transport services, to this basic rule. The main changes will be implemented on 1 January 2010. For cultural, sporting, scientific and educational services, the change will be introduced on 1 January 2011. 

 The effect of this is to make most intra–EU services received by business customers subject to the reverse charge, whereby the customer accounts for VAT on the service in his country.

 Business to Consumer Services (B2C) – where a business is invoicing a customer who is not a business

 For supplies of services B2C the basic rule for the place of supply will continue to be the place where the supplier is established. Changes are expected to be introduced in 2015 to make the place of supply where the customer belongs.

 Other services

 The existing exceptions to the basic rule, such as for land-related supplies, will remain, with the exception of valuations of, and work on, moveable property, which will be taxed where the customer is located, rather than the place of performance. This will be a welcome change for businesses involved in cross-border maintenance contracts.

 Time of supply

 The rules on the time the VAT is due under the reverse charge are also changing on 1 January 2010, Instead of the date of payment triggering the requirement to account for VAT, the date VAT is due will be the earlier of:

 - the date the service is completed; or

 - when payment is made.

 For continuous supplies the time of supply will be linked to payment periods, but where no payment is made or invoice issued in a 12-month period, a deemed tax point will occur at the end of the calendar year. 

 E.C. Sales Lists (ESL’s)

 From 1 January 2010 businesses supplying services to businesses which are liable to the new reverse charge procedures will have to submit ESLs for the first time.

They will therefore need to ensure they have the customer’s VAT number. If the customer is a business which is not VAT registered there is no requirement to record the transaction on the ESL, but it will still need to be recorded on VAT returns.

 Businesses which supply goods to the EU are already required to submit ESLs. If they supply both goods and services the same form can be used.

 The new filing dates require submission within 14 days, or 21 days if filing electronically.

 Penalties will be imposed for failure to submit ESLs, or for late filing.

 Overseas VAT Reclaims

 The paper system for claims for the refund of VAT incurred in other EC countries is to be replaced by an electronic system via the customer’s member state. The claim will then be passed to the member state where the VAT was incurred for refund. The time limit for making claims will be extended by 3 months to 9 months from the end of the calendar year in which the VAT was incurred, so claims must be made by 30 September. Member states must refund within 4 months of receipt and interest is due if payment is late.

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 Impact on Businesses

 The main impact of the changes will be the need to ensure that accounting systems and procedures are in place to deal with the new requirements.

 Businesses making supplies of services to other EU states will need to: 

 - review contracts to determine where such services will be deemed to be received;

 - ensure they have details of customer VAT registration numbers,

 - ensure they are clear in which jurisdiction a client is receiving a service where customers have one or more business establishments; and

 - ensure they are ready to submit ESLs by 1 January 2010.

 Traders receiving supplies of services from EC businesses will need to consider how to account for UK VAT on such services and what the likely impact (if any) will be.

If you have any questions on the new VAT rules then please contact Humphrey & Co for further advice.