Upcoming VAT Changes

Cross-border VAT – changes to EC Sales Lists from 1 January 2010

From 1 January 2010 if you supply services to EC businesses where the place of supply is your customer’s country and the reverse charge applies, you will have to complete an EC Sales List (ESL). Currently you are only required to complete an ESL if you supply goods to a VAT-registered business in another EU country but from 1 January this will be extended to include intra-EC supplies of services.

The basic rules that need to be followed are:

ESLs must be completed monthly where supplies of goods have been made and the total supplies exceed the threshold, currently £70,000 in a quarter. If the total is under the threshold then the ESL can still be completed quarterly.
ESLs can be completed monthly or quarterly where supplies of services have been made.
Businesses have 14 days from the end of the reporting period to send their returns to HMRC on paper or 21 days if they submit the forms electronically.
‘Nil’ ESLs are not required by HMRC

The method for submitting the EC Sales List is either electronically through the ‘ECSL Service’ or by using the paper ESL Form VAT 101.

Change in VAT rate to 17.5% from 1 January 2010 – Anti-forestalling legislation

HMRC are aware that businesses who are unable to recover all the VAT they incur may attempt, through artificial arrangements, to cut the VAT due on items to be provided after the standard rate increases to 17.5 %. In order to prevent this they have introduced anti-forestalling legislation and under certain conditions a supplementary VAT charge of 2.5% may apply.

The legislation prevents forestalling by introducing a supplementary charge to VAT on the supply of goods or services (or the grant of the right to receive goods or services) where the customer cannot recover all the VAT on the supply and one of the following conditions is met:

The supplier and customer are connected parties; or
The supplier funds the purchase of the goods or services (or grant of right); or
A VAT invoice is issued by the supplier where payment is not due for at least six months. These provisions have effect on and after 25 November 2008.

A supplementary charge will also apply where a pre-payment of in excess of £100,000 is made before the rate rise in respect of goods or services (or in relation to the grant of the right to receive goods or services) to be provided on or after the date of the rate rise. However, it will not apply if the prepayment is in accordance with normal commercial practice in relation to such supplies when no VAT rate increase is expected. This provision has effect on and after 31 March 2009.

The phasing out of paper VAT returns from 1 April 2010

HM Revenue & Customs have announced the phasing out of paper VAT returns. This will commence on 1 April 2010 when every VAT registered business with an annual turnover of £100,000 or more (exclusive of VAT) will be required to submit their returns online and to pay electronically (by BACS, CHAPS, telephone or internet banking)

The same rule will apply to all businesses that newly register for VAT, irrespective of their turnover.

Other businesses that do not fall into either category will still be able to file paper returns but this will be reviewed in the run up to 2012.

Some of the advantages of submitting your VAT return online are:

You have an additional seven calendar days to file the return.
You have an additional seven calendar days for your payment to reach HMRC.
Online submission is faster and not affected by postal delays.
On-screen information is provided to help with the completion of the return.
Automatic calculations and checks are carried out to reduce errors.