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Andrew Needham reports on some important recent VAT changes.

Introduction

From 1 January 2010 there are new rules for the place of supply of services, new reporting requirements for EC Sales Lists (‘ESLs’) and a simplified method for reclaiming VAT incurred in other EU Member States.

New Rules - Place of Supply

Up to 1 January 2010, the basic rule for the place of supply of services was that they were supplied in the country where the supplier belonged. From 1 January 2010 the basic rule for business to business supplies of services is that they are supplied where the customer belongs and is subject to the ‘reverse charge’ by the customer.

The Reverse Charge - How it Works

The reverse charge is a simplification measure designed to avoid overseas businesses needing to register in a Member State when it is possible for the customer to account for the VAT on a supply. As the customer, on the UK VAT return you would charge yourself VAT on the purchase of the service and show it in box 1 of the VAT return and reclaim it in box 4, (subject to the normal rules - partial exemption, etc.), the net effect being nil.

Changes to EC Sales Lists

The following changes to ESLs apply from 1 January 2010 and cover businesses supplying services to businesses in other EU Member States:

• ESLs relating to services may be submitted quarterly, on a calendar quarter basis showing indicator 3 to signify services .
• ESLs relating to goods may also be submitted on calendar quarters, provided that the VAT-exclusive value of supplies of goods to other Member States has not exceeded £70,000 in any of the previous 4 quarters. This changes to £35,000 per quarter from 1 January 2012.
• If a business exceeds the quarterly goods threshold an ESL must be submitted at the end of that month, covering the month or months in that quarter. ESLs must be submitted monthly thereafter.
• Once a business is on a monthly cycle it must continue to submit monthly ESLs for goods until the value of its intra-Community trade in goods has been below the threshold for 5 consecutive quarters – it may then revert to quarterly submission.
• A business required to submit monthly ESLs relating to goods, may still submit ESLs relating to services quarterly.
• The time limit for submitting returns has been changed to 14 days from the end of the month for paper returns and to 21 days for electronically submitted ESLs.

Reclaiming VAT Incurred in Other Member states

A new electronic cross-border refund system went live across the EU from 1 January 2010.

The cross-border refund system enables a business that incurs VAT in another Member State to recover it directly from that Member State (the Member State of Refund - MSR). The current system, known as the 8th Directive refund system, is a lengthy, burdensome, paper-based system.

Under the new electronic system:

• The claim will be sent to the MSR, via the business’s own tax authority thus eliminating the need for a VAT 66.
• The format of the claim is simplified, introducing the use of standard fields for information and coding purposes. This user-friendly approach will reduce the number of issues due to language problems.

From 1 January 2010, claimants have nine months (rather than the current six months) in which to submit claims for VAT in the preceding calendar year.

The claim must normally be processed within four months and, if approved, repaid within ten working days. If further information is required the processing time can be extended to eight months. If these time limits are exceeded interest will be paid.

The following de minimis limits will apply to claims:

• For periods of less than one year but not less than three months, it must be for at least EUR 400.
• If the claim relates to a whole year or the remainder of a year, it must be for at least EUR 50.

There will be a maximum of five claims that can be submitted to each MSR per year - essentially one per quarter, plus a final ‘sweep-up’ claim to capture any invoices not previously claimed during that year.

Details of these changes can be found at: VAT: Cross-Border VAT Changes 2010

TaxationWeb has more information on how the new regime will affect businesses operating in Italy, see Italian VAT Simplification to Cause Long Cash Delays - Ed.