Place of Supply: Change in Rules

Author: Robert Killington

Author: Robert Killington

In the previous articleI have covered the change in the VAT rate in 2010 and several issues that may arise in connection with it. But the VAT rate is just one of the several changestaking place2010, and, perhaps, the easiest to deal with. There are others and they are subtler and more complicated than the rate change. Among them there are changes to the place of supply rules. The place of supplyused to bewhere the supplier was established, both for B2B (business to business) and for B2C (business to customer) supplies. It will no longer be that simple in 2010. For B2C supplies the same general rule will apply, but for B2B supplies it will change. Such supplies will be taxed where the customer is established. Further changes to the rules are expected in January 2011, January 2013 and January 2015. You will be affected by these changes if you: supply services to overseas businesses receive services from overseas businesses supply goods to other EC countries want to reclaim VAT incurred in another EC country From 1 January, as stated on HMRCs website,most services provided to business customers will be treated as supplied in the country where the business customer is established, and the business customer will account for VAT under the reverse charge mechanism. The important points about the reverse charge mechanism are these: It concerns you if you are a customer and receive services from a supplier established in a different country It applies if the service you receive is not covered by the basic rule for place of supply of services It also applies if the service is covered by European Community (EC) simplification, assuming you belong in the UK and the supplier belongs in another EU country For more information about the services the reverse charge applies to you might want to download the following PDF from HMRCs website: VAT Notice 741 Also, remember that its essential to convert the value of services into sterling if any other currency was originally used to pay for them. The documents available on the HMRC website also explain how to prove the business status of the customer. Normally a valid VAT number is sufficient evidence. If your customer is not yet VAT registered, alternative evidence may be used. Its therefore advisable that you start collecting the VAT numbers of your overseas business customers right now to be ready by the time the new rules are introduced. Additionally, customers who cant provide sufficient evidence that they are in business should be treated as non-business customers, whereas customers involved with both business and non-business activities should be treated as business customers but not if the supplies are received for a wholly private purpose. Many other important and subtle issues are covered in detail in various documents and articles available from HMRCs website. We suggest that you start reading this page on HMRCs website and follow the links from there this way you should quickly find everything that is important for your cross border VAT in 2010.About the Author:

VATark (http://vatark.co.uk/) is the trading style of Robert Killington.

I started working in indirect taxation over 30 years ago. I worked for Customs & Excise (now H M Revenue & Customs (HMRC)) for 13 years covering many aspects of the departments work. In 1988 I left Customs & Excise to work for a firm of Chartered Accountants. I left the last firm I worked for in 2000 to set up my practice, with the objective of providing sound, pragmatic advice to businesses, charities, and other organisations affected by VAT.

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