Navigating the New EU VAT Landscape: Essential Insights for UK Accountants
The advent of new EU VAT rules On July 1, 2021, a significant overhaul for e-commerce businesses took effect, extending to all goods and services irrespective of commercial value. This comprehensive modification spans the entire transaction supply chain, influencing sellers, consumers, sales and payment platforms, alongside postal, courier services, and tax authorities in the EU member state where consumers reside. This change is pivotal for understanding VAT in the EU, including the nuances of the VAT in Europe, and necessitates obtaining a European VAT number for compliance.
In response to these regulations, UK accountants must navigate changes such as the elimination of previous VAT exemptions for goods under €22, and the introduction of the One-Stop Shop (OSS) online portal for filing a single EU VAT return. This affects suppliers and traders engaged in exports and imports across the EU. Such modifications underscore the necessity for innovative VAT calculation strategies, including VAT MOSS, and a meticulous understanding of the new VAT registration and reporting requirements to ensure compliance and optimise business operations in every EU country involved.
Impact of VAT Changes on UK-EU Trade
VAT Registration and Compliance
- UK businesses selling goods to the EU are required to be VAT-registered with HM Revenue and Customs (HMRC) and can charge VAT at a zero rate on these sales.
- Non-Union VAT OSS Scheme For services from the UK to the EU, businesses can register for the non-union VAT One Stop Shop (OSS) scheme, allowing them to report and pay VAT on distance sales of goods from Northern Ireland to the EU. This is a strategic move to simplify VAT MOSS processes for businesses.
- EC Sales List Adjustments Previously, UK VAT-registered businesses needed to complete an EC Sales List for goods and services supplied to VAT-registered customers in the EU. This requirement has been removed for exports from Great Britain to EU businesses and for services supplied from the UK to the EU.
Upcoming VAT Reforms
- VAT in the Digital Age (ViDA) Proposal Significant changes under the ViDA proposal include mandatory domestic reverse charge for B2B sales, a single VAT registration for intra-EU movements of goods, and changes to call-off stock rules, all set to impact UK businesses from 2025. These are part of the broader EU VAT Directive updates that businesses need to prepare for.
- E-Invoicing and Digital Reporting From 2028, the EU plans to implement wider e-invoicing and digital reporting requirements, which will necessitate updates in invoicing and bookkeeping systems for UK businesses trading with the EU. This move towards digital tax reporting is a significant step for businesses to adapt to.
- Platform Economy and Digital Services The ViDA proposals aim to extend the ‘deemed supplier’ principle, affecting platforms and digital services, which will require platforms to use the I-OSS for goods exported to EU customers and bring more services under the scope of VAT. This includes a focus on VAT on digital services, ensuring VAT digital services are properly accounted for.
Preparing for Future Changes
- Business Impact AnalysisUK businesses must analyse the structure of their operations focusing on supply chains across the EU to assess the impact of upcoming VAT changes. This VAT assessment is crucial for adapting to the evolving tax landscape.
- Adaptation to New RulesIt is crucial for businesses to understand the new VAT regulations and prepare for compliance, especially with the introduction of new reporting schemes and mandatory domestic reverse charges starting from January 2025. Keeping abreast of VAT updates and ensuring VAT compliance are key steps for businesses in this transition.
- Monitoring and ComplianceFirms should monitor the ViDA proposals and prepare for potential changes to policy terms or timescales, ensuring they remain compliant and avoid penalties. Keeping abreast of vat updates is crucial in this dynamic regulatory landscape [11].
Key VAT Changes for Digital Services
VAT Changes Impacting Digital Services
1. Introduction of the Import One Stop Shop (IOSS)
UK businesses selling low-value goods (under €150) to EU consumers can benefit from the IOSS, simplifying VAT processes by allowing registration in a single EU member state for VAT purposes. This MOSS system streamlines the VAT reporting and payment process when selling to EU consumers [5].
2. ViDA Proposals and Digital Services
The VAT in the Digital Age (ViDA) package introduces significant changes:
- From 2025, platforms facilitating short-term accommodations and passenger transport will need to apply VAT if the service provider does not charge it, due to the new ‘deemed supplier’ rules. This MOSS regulation, reflective of the digital age, ensures short-term accommodation services are fairly taxed [13].
- Single VAT Registration Aims to simplify VAT registration processes by allowing businesses to register in just one EU member state, even if they operate across multiple states. This MOSS change, relevant in the digital age, will be particularly impactful for businesses dealing with second-hand goods, art, and antiques, which will be subject to distance selling rules from 2025 [13].
- Digital Reporting and E-invoicingBy 2028, mandatory e-invoicing and a two-day digital reporting requirement will be enforced for all intra-EU B2B supplies, aimed at reducing VAT fraud. This move towards digital compliance signifies a major shift in the digital age [13].
3. Mandatory Reverse Charge and OSS Extension
Starting in 2025, a mandatory reverse charge will apply to all intra-Community B2B supplies of goods and services, extending the One-Stop-Shop (OSS) to include B2C supplies of goods, thus broadening its scope significantly. This expansion into intra-community transactions and supplies marks a significant MOSS evolution [7].
4. Regulation of Digital Services
The place of supply rules will continue to determine the taxation locale for digital services, focusing on the consumer’s location and whether the service is digital. This MOSS guideline is crucial for UK businesses as it affects how VAT on digital services is charged and reported when services are provided to non-business consumers in the EU [12].
5. Responsibilities of Digital Platforms
If digital services are sold through third-party platforms or marketplaces, these platforms will be responsible for VAT accounting, shifting the compliance burden from individual suppliers to the platforms. This MOSS policy helps streamline VAT processes for digital sales [12].
6. Future Extensions of the ‘Deemed Supplier’ Principle
The ‘deemed supplier’ principle will be extended to new sectors such as transport and hospitality, affecting platforms that enable these services. This MOSS change, a reflection of the digital age, is anticipated to level the playing field among EU businesses by ensuring VAT is consistently applied [8].
VAT Registration and Reporting Requirements
Online VAT Registration and Filing
1. One-Stop Shop (OSS) Portal
Online sellers can streamline their EU VAT obligations by filing a single EU VAT return through the One-Stop Shop (OSS) online portal. This MOSS approach simplifies the VAT process by consolidating filings into one uniform submission, making it easier for businesses to manage their VAT duties [1].
2. Real-Time Digital Reporting
Starting in 2024, businesses engaging in cross-border transactions will be required to implement real-time digital reporting based on e-invoicing, marking a significant shift into the digital age from traditional methods.
3. Single VAT Registration Zone
The introduction of a single VAT registration zone from 2024 will simplify the VAT process for non-EU exporters by reducing the number of EU countries where registration is required, thereby easing the administrative burden.
VAT Registration Thresholds and Procedures
4. Mandatory VAT Registration
UK businesses must register for VAT if their VAT taxable turnover exceeds 85,000 within any 12-month period. This registration is crucial to remain compliant with tax authorities.
5. Voluntary VAT Registration
Businesses whose turnover falls below the 85,000 threshold may choose to register for VAT voluntarily. This can offer benefits such as reclaiming VAT on business expenses.
6. EU Registration for Northern Ireland Businesses
For businesses in Northern Ireland selling goods to the EU, VAT registration in the EU country of sale is mandatory if sales exceed the distance selling threshold of 8,818.
Updating and Managing VAT Information
7. Notification of Business Changes
It is essential for businesses to inform HM Revenue and Customs (HMRC) about any changes in business details, such as address, company name, or bank account changes, to ensure records are up-to-date.
8. VAT Deregistration
Businesses that cease making taxable supplies or meet specific conditions may deregister from VAT, which involves notifying HMRC about the cessation of taxable activities.
9. Transfer of VAT Registration
In certain circumstances, such as mergers or demergers, businesses can transfer their VAT registration to another business entity, maintaining continuity in VAT obligations.
VAT Reporting and Compliance
10. Periodic VAT Returns
Businesses are required to submit VAT Returns usually every three months. These returns must detail the business’s sales, purchases, and the amount of VAT paid or reclaimed, which helps in maintaining transparency and compliance with VAT returns.
11. Postponing Import VAT
UK VAT registered importers have the option to postpone import VAT on UK imports, which can assist in cash flow management by delaying the payment of import taxes.
Strategies for Complying with New VAT Rules
Leveraging Technology for Compliance
1. Update Invoicing and Bookkeeping Systems
UK businesses must adapt their invoicing and bookkeeping systems to align with the new EU VAT regulations, ensuring they can handle real-time digital reporting and e-invoicing. This includes the ability to send and receive e-invoices in strictly regulated formats. Identifying suitable ERP or transaction management application extensions is crucial if the current tech stack does not support these digital requirements.
2. Utilise Advanced Tax Compliance Software
Incorporating cloud-based global tax software like Thomson Reuters ONESOURCE Indirect Tax Compliance and ONESOURCE Determination can significantly simplify the management of EU VAT operations, offering streamlined processes and compliance assurance. This approach aligns well with the MOSS system, enhancing efficiency.
Strategic Business Analysis
3. Comprehensive Review of EU Operations
Companies should conduct an in-depth vat assessment of their business structure and review their operations within the EU to understand the implications of VAT changes on their supply chains. This proactive approach allows firms to adjust their strategies in response to regulatory changes effectively.
4. Anticipate and Prepare for Changes
It’s essential for firms to assess the potential impact of new VAT rules on their operations well ahead of implementation deadlines. Continuous monitoring of the ViDA proposals is recommended to stay updated with any changes to the policy’s terms or timescales, ensuring compliance with the EU VAT Directive.
Maintaining Compliance and Record-Keeping
5. Adherence to New Reporting Standards
Businesses should ensure they are equipped to comply with the latest EU VAT reporting requirements, including the maintenance of detailed records of call-off stock movements and values up to the end of 2020. It is also necessary to update the EC Sales List with accurate customer details and transaction values.
6. Regulatory Compliance and VAT Deregistration
Firms must maintain compliance by updating HM Revenue and Customs (HMRC) regarding any significant changes in business details and consider the conditions under which they might need to deregister from VAT. This includes keeping a register with details of call-off stock movements and values for all call-offs up to and including December 31, 2020.
References
[1] – https://tax.thomsonreuters.co.uk/onesource/eu-vat-rules/
[2] – https://taxnavigator.co.uk/accounting-for-vat-on-services-between-the-uk-and-eu-member-states/
[3] – https://www.gov.uk/register-for-vat/register-vat-eu-countries
[4] – https://www.gov.uk/guidance/vat-how-to-report-your-eu-sales
[5] – https://www.fsb.org.uk/resources-page/10-vat-considerations-for-trading-with-the-eu.html
[6] – https://yogatax.co.uk/help/vat/vat-digital-services-eu/
[7] – https://www.bdo.co.uk/en-gb/insights/tax/vat-and-indirect-taxes/digital-age-vat-in-the-eu-reforms-on-the-way
[8] – https://www.businessandindustry.co.uk/tax/eu-vat-changes-to-impact-uk/
[9] – https://www.uhy-uk.com/insights/significant-eu-vat-changes-could-impact-uk-businesses
[10] – https://www.taxadvisermagazine.com/article/upcoming-eu-vat-changes-2025-untangling-puzzle
[11] – https://www.accountancyage.com/2023/08/21/eu-vat-changes-could-still-impact-uk-firms-experts-warn/
[12] – https://www.gov.uk/guidance/the-vat-rules-if-you-supply-digital-services-to-private-consumers
[13] – https://www.bdo.global/en-gb/insights/tax/indirect-tax/united-kingdom-impact-of-eu-vat-in-the-digital-age%E2%80%9D-proposals-on-uk-non-eu-organisations
[14] – https://www.accountingweb.co.uk/tech/tech-pulse/vat-in-the-digital-age-how-can-uk-businesses-prepare-for-2024
FAQs
Question 1: How is VAT handled for transactions between the UK and the EU post-Brexit?
After Brexit, the previous Intra-EU VAT rules no longer apply to transactions between the UK and the EU. Now, these transactions are treated as exports and imports, with VAT in the EU being charged to the EU customer at the local rate upon importing goods, which may also be subject to customs duties.
Question 2: Should VAT be charged to EU customers by UK service providers?
As of 1 January 2021, VAT is not charged to any overseas clients, including those in the EU and non-EU countries, for services provided by UK businesses. This is in accordance with the extension of Para 16, which applies to consumers outside the UK.
Question 3: What recent changes have been made to VAT regulations?
The threshold for businesses to register for VAT has been raised from a taxable turnover of £85,000 to £90,000. Additionally, businesses can deregister for VAT if their taxable turnover falls below £88,000, up from the previous threshold of £83,000. These changes are set to take effect from 1 April 2024.
Question 4: Do UK companies need to charge VAT on services provided to the USA?
For UK businesses providing services where the place of supply is the USA, VAT does not need to be charged. This type of transaction is considered outside the scope of VAT, and details should be recorded in box 6 of the VAT return.
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