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VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, explains how differences between the VAT and Intrastat systems can result in differences in Intrastat returns against his VAT returns and EC Sales Lists. A client of VAT Solutions contacted us with a problem he had encountered during a Customs VAT visit. Customs had checked his Intrastat returns against his VAT returns and EC Sales Lists, and they did not match. Customs said that he must have made mistakes, and that he had to identify what they were. Our client had checked his Intrastat returns and was sure that he had completed them correctly; so what could the matter be?

The Intrastat system is complex and administratively burdensome on businesses despite some recent simplifications. One of the main sources of confusion for business are the differences between the VAT and Intrastat systems in the way they treat certain transactions.

Confusion

The Intrastat systems applies to the movement of goods only and not to the supply of services, although the VAT and Intrastat system do not always agree on what is a supply of goods or services, so the same supply can be treated differently by the two systems. Could this be the reason for the mismatch?

Our client did a lot of process and repair work for businesses in other EU member states. The VAT system treated these as supplies of services, but the Intrastat system treated them as supplies of goods. So what, you may say?

Process and repair

The treatment of process and repair is one of the most common causes of confusion for businesses. This is because, as mentioned earlier, the VAT and Intrastat systems are not always consistent in what they treat as supplies of goods or services. For Intrastat purposes the repair and processing of goods is classified as a supply of goods. Using the example of a UK processor, the full value of the goods received should be recorded on the Intrastat Arrivals SSDs, for example £10,000. When the goods are returned, the value of the goods and the value of the processing or repair should be aggregated and recorded on the Dispatches SSD, for example, £2,500 in processing costs added to the £10,000 value of the goods, showing a total of £12,500.

However, for VAT purposes, these supplies are considered to be services and as such only the value of the process/repair (£2,500) appears in boxes 1 to 7 of the VAT return, even though the Intrastat values should appear in boxes 8 and 9. This could lead to the situation where there appears to be an EU purchase recorded in box 9, but no corresponding acquisition tax appearing in box 2. Process and repair does not even appear on the EC Sales List.

Tip

Because of these different treatments the figures will never balance between the VAT returns and the Intrastat SSDs. If you are engaged in this activity, and Customs question the fact that the figures do not balance, explain the situation to them as they are very rarely aware of this situation (do not think it may just be easier to put the same figures on the Intrastat and VAT returns).

You also get differences in treatment between VAT and Intrastat for “triangular transactions”.

Triangulation is the term used to describe a transaction where the three parties involved are in different EU Member States, the invoicing route goes from A to B and B to C but the goods themselves move directly from A to C. Intrastat SSDs record the physical movement of the goods, so in this situation Company A records a dispatch to C, and C records an arrival from A. B, however, is not required to do anything for Intrastat purposes or record it on his VAT return. B will, however have to record the transaction on his EC Sales Lists.

Makes perfect sense doesn’t it!

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com

VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc