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Updated VAT Online Services
One subject that’s caught my eye recently on the HMRC website is the information about the updated VAT Online Services. It’s all in anticipation of the introduction of compulsory electronic VAT returns for businesses whose annual turnover exceeds £100,000 on 1 April next year. There is a lot of information and a lot of advice available.
These include a number of HMRC events around the country over the next few months where any business or advisor can go along and get advice about the VAT Online Service, so it’s worth going along to have a chat with an officer if you or your clients have had any problems or queries about anything related to VAT Online Services. And additional and updated information about the VAT Online Service has been issued over the past couple of weeks. All of this information can be found on the HMRC newspage here http://www.hmrc.gov.uk/news/index.htm
2010 Changes to the Place of Supply of Services rules
Another important topical issue is the introduction of a number of new rules relating to the place of supply of services (or “POSS” for short!) which are introduced throughout the EC between 2010 and 2015. HMRC has issued an updated version of their lengthy VAT Notice 741 (25 November 2009) about the subject which gives detailed guidance about the subject and explains the new rules. You can download it from the newspage.
I posted a couple of articles about the background to the changes earlier in the year here https://vatexchange.co.uk/forum_Place_of_supply_of_services and a blog here https://vatexchange.co.uk/blog_understanding_supplied_where_received where I’ve tried to explain the main principles in everyday English if you want a less detailed explanation before trying to get your head round the information in Notice 741.
The most important change is the introduction of a new “general rule” for the place of supplies of services to EC customers. For the majority of EC services, it actually doesn’t change the VAT liability (ie whether you charge UK VAT to EC customers) so it won’t affect many businesses from a practical point of view. However there is a fundamental reversal in technical terms concerning the place of supply for the majority of supplies to EC business customers and it’s important to understand the principles involved, especially if you have clients involved in different types of EC trade.
The original rule has always been that the place of supply of any service is where the supplier belongs, unless the rules specifically state otherwise. The exceptions include the provision of certain specified services, including consultancy or accounting services, to EC businesses. So if I was providing consultancy services to a French private customer, the place of supply would be in the UK and therefore I would have to charge UK VAT. But if my client was a French business, the place of supply would be shifted to France. This means that I don’t charge UK VAT but the French customer accounts for French VAT on the service received from me on its French VAT return.
New General Rules
From 1 January, the general rule is replaced with the following:
• The B2B General Rule: Where the supply of services is from business to business (ie B2B), the place of supply is where the customer belongs unless covered by the special rules.
• The B2C General Rule: Where the supply of services is from business to consumer (ie private individual or B2C) then the supply is where the supplier belongs again unless covered by the special rules.
What does all of this mean in practice?
Well in practice, nothing really. All that the new B2B General Rule does is to redefine the terminology but doesn’t actually affect the majority of transactions. But the concept has been reversed so that the reason WHY VAT is chargeable has changed rather than WHETHER VAT is chargeable. Under the original rule, your supply is liable to UK VAT UNLESS covered by one of the special rules. Under the new B2B General Rule, your supply is ONLY liable to UK VAT if it is covered by one of the special rules.
The “special rules” are the exceptions which have always existed. But there are some new “special rules” for limited types of transactions, such as changes to the place of supply of the hire of certain means of transport (particularly cars or boats) or certain performance related services.
So in the case of my consultancy services to the French company, the place of supply is France because it is covered by the B2B General Rule and not affected by the special rules.
This all sounds as though it is significant and it is important in technical terms because it redefines the POSS principles. But for the majority of intra-EC transactions, it doesn’t actually change anything in practice.
It’s worth mentioning that because of the fundamental change in the principle regarding B2B transactions, the new version of Notice 741 has been substantially re-drafted even though it covers the same subject areas. Changing a major public VAT notice to reflect a reversal of a fundamental principle must have been a challenging project for HMRC’s technical staff and I think that they have done a good job with the new version.
There is a useful list of the types of transactions that are affected by existing or new special rules at paragraph 2.4.3 of the new Notice 741, so take time to look at this and see if your business could be affected.
Even if your business isn’t affected by the changes, it’s worth remembering the new “General Rules” for future reference.
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