Vat Update November 09

VAT update November 2009

VAT rate increase on 1 January 2010 The current temporary reduction in the standard rate of VAT will end on 31 December 2009. With effect from 1 January 2010, the VAT rate will revert back to 17.5%. HMRC has recently announced that retail businesses remaining open past midnight on New Year's eve will be allowed to continue charging VAT at 15% on their sales until they close or until 6.00am on 1 January 2010. There has been press speculation that the rate could be increased to 18% or 19%, to generate much needed revenue for the Government. At the time of going to print, this remains speculation. Businesses should ensure that they are ready for the change. Systems may have to cope with both VAT rates during the transitional period, for sales and purchases. The normal tax point rules will determine which VAT rate to apply to supplies of goods and services, however,

businesses can choose to apply special transitional rules. These rules deal with supplies which span the rate change and how to treat deposits, pre-payments etc. Anti-forestalling legislation was introduced in the Finance Act 2009 to prevent abuse of the increase in the VAT rate, eg making unusually large prepayments. However, these rules should not affect the majority of normal business transactions. HMRC have published detailed guidance on their website to assist businesses to deal with the change and have set out full details of the anti-forestalling rules. The good news is that they have indicated that they will apply a 'light touch' to any errors made in the first VAT return submitted after the change in rate.

Cross border changes In our January 2009 VAT update, we reported on some proposed changes to cross border transactions involving both suppliers and recipients of cross border services. These changes will come into effect on 1 January 2010. The main change will be to the place of supply of business to business supplies of services. The general rule will be that the place of supply of such services will be where the customer is established (and not as now, where the supplier is established). As always, however, there will be exceptions to the general rule (land, hiring of certain means of transport and cultural, sporting, scientific and educational services). The VAT rules for business to consumer supplies will remain unchanged for now. The time of supply for reverse charge services will change from the invoice date to the earlier of:

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completion of the service, or

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the receipt of payment.

ESLs for goods will also be subject to a number of changes from 1 January next year:

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For quarterly value of supplies of intra EU goods above £70,000 (based on previous four calendar quarters), the reporting period will be one month (currently quarterly).

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For quarterly value of supplies of intra EU goods below £70,000, the reporting period will be calendar quarterly.

However, a business can opt to file both ESLs monthly. Filing can be on paper or electronically. The filing deadline for the paper option will be 14 days from the period end and 21 days for electronic filing. The current form VAT 101 will be used for both goods and services (indicator code 3 for services). Businesses should now be considering how the new rules will affect them and what changes may be needed to capture the relevant data. The first stage will be to obtain overseas customers’ VAT numbers. ...continued

EC Sales Lists (ESLs) currently required for Intra EU supplies of goods to VAT registered customers will also be required for Intra EU supplies of services, covered by the general rule and where the customer is required to account for VAT under the reverse charge procedure. ESLs for services will have to be reported on a calendar quarterly basis.

Also featured in this issue: •

Online VAT returns - a reminder

•

Agent update

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Cross border changes

(...continued)

Businesses which pay overseas VAT and currently submit refund claims to overseas tax authorities should be aware that a new electronic refund system will also be introduced from 1 January 2010. The main change is that claims will now be submitted via a UK portal on the Government

Gateway and forwarded onto the Member State of Refund (MSR). New deadlines have been set both for submission and refund of the claim. Further details are available on HMRC's website.

Online VAT returns - a reminder The deadline for compulsory online filing of VAT returns is nearly upon us. With effect from 1 April 2010, all businesses with a turnover above £100,000 and all newly VAT registered businesses will have to submit VAT returns online and pay by electronic means. Businesses with a turnover below £100,000 can continue to file paper returns until 2012. The current ways to pay electronically are:

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Direct debit

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Internet banking

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Telephone banking

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Debit/Credit card over internet using Billpay

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BACS direct credit

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CHAPS

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Bank giro credit transfer (cash or cheque at certain banks/building societies).

Some of these electronic payment methods allow extra time (seven days) to file and pay the return.

Agent update Currently businesses wishing to authorise an agent to deal with their VAT affairs have to complete a form 64-8 and submit this by post to HMRC. HMRC have recently announced it will soon be possible to deal with VAT

authorisations via the online service (Online Agent Authorisation Service) currently available for other taxes. It is anticipated that this service will be available from late November 2009.

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