New VAT rules could be a burden for some UK firms
A major change to the way that VAT is charged across the EU could impose extra admin costs on UK firms.
According to Douglas Gordon, chairman of the Chartered Institute of Taxation’s VAT and indirect taxes sub-committee, the new rules “will add to the administrative burden on many businesses”.
The new rules, which came into force on 1 January, affect the VAT taxation of cross-border services within the EU.
Under the change, almost all services that are supplied to a business in another EU state are now treated as supplied in the place where the customer is established.
The changes were prompted by the number of services that are being provided across national borders and are aimed at making it fairer for service businesses to compete with each other.
Practically, it means that firms that trade across EU borders must put together lists each quarter setting out details of the services that have been supplied to VAT-registered EU customers. Under the old rules, only customers to whom goods were supplied had to be listed.
The concern, however, is that the changes will create extra paperwork and add to administrative costs, especially for smaller firms.
Mr Gordon went on to say: “The introduction of a general rule that the place of supply of services is where consumption takes place is sensible. In the process we have lost a number of areas of uncertainty, which will deliver significant benefits.”
But he added: “However, I fear that the changes will add to the administrative burden on many businesses. This is because the shift in the general rule means that national governments need statistical data on cross-border transactions in order to police them.
“The existing ‘Intrastat’ system is therefore being extended from goods to services, with a consequential increase in the administrative burden, and many businesses being brought into the system for the first time.”
Stephen Alambritis of the Federation of Small Businesses said: “We would urge the government to look at this regulation and make sure that we are not gold-plating the European requirements. In a year that is all about recovery, it is important that we don’t stall it by landing more paperwork on small businesses.”