Tag Archives: value-added-tax

VAT (GST) Introduction in India delayed

By Marcus Ward 23 January 2017

It was recently announced that the Indian version of VAT: Goods & Services Tax – GST is intended to be rolled out across the country on 1 July 2017 rather than the previously announced date of April 2017. This is after details of how the income will be shared between various authorities has been agreed.

It is anticipated that GST will follow the European model and that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions. GST will incorporate and replace all the various central taxes such as: Central Excise Duty, Additional Excise Duty, Service Tax, Additional Custom Duty and Special Additional Duty as well as state-level taxes such as Value Added Tax or Sales Tax, Central Sales Tax, Entertainment Tax, Entry Tax, Purchase Tax, Luxury Tax.

The introduction of GST is likely to bring in significant changes to doing business in India or with Indian suppliers/customers cross-border.

Please contact us should you have any queries on this matter.

VAT – Overseas Holiday Lets: A Warning

By Marcus Ward 16 January 2017

Do you, or your clients, own property overseas which you let to third parties when you are not using it yourself?

It is important to understand the VAT consequences of owning property overseas.

The position of UK Holiday Lets

It may not be commonly known that the UK has the highest VAT threshold in the EC. This means that for many ‘sideline’ businesses such as; the rental of second or holiday properties in the UK, the owners, whether they are; individuals, businesses, or pension schemes, only have to consider VAT if income in relation to the property exceeds £83,000 pa. and this is only likely if a number of properties are owned.

It should be noted that, unlike other types of rental of homes, holiday lettings are always taxable for VAT purposes.

Overseas Holiday Lets

Other EC Member States have nil thresholds for foreign entrepreneurs. This means that if any rental income is received, VAT registration is likely to be compulsory. Consequently, a property owner that rents out a property abroad will probably have a liability to register for VAT in the country that the property is located. Failure to comply with the domestic legislation of the relevant Member State may mean; payment of back VAT and interest and fines being levied. VAT registration however, does mean that a property owner can recover input tax on expenditure in connection with the property, eg; agent’s fees, repair and maintenance and other professional costs. This may be restricted if the home is used for periodical own use.

Given that every EC Member State has differing rules and/or procedures to the UK, it is crucial to check all the consequences of letting property overseas. Additionally, if any other services are supplied, eg; transport, this gives rise to a whole new (and significantly more complex) set of VAT rules.

A final word of warning; I quite often hear the comment “I’m not going to bother – how will they ever find out?”

If an overseas property owner based in the UK is in competition with local letting businesses, those businesses generally do not have any compulsion in notifying the local authorities. In addition, I have heard of authorities carrying out very simple initiatives to see if owners are VAT registered. In many resorts, income from tourism is vital and this is a very important revenue stream for them so it is well policed.

Please contact us if you are affected by this matter; we have the resources to advise and act on a worldwide basis.

www.marcusward.co

VAT Self-billing and latest from the courts

By Marcus Ward 6 January 2017

Self-billing: where the customer issues the invoice (and how this can go wrong).

A recent case Court of Appeal case: GB Housley here has highlighted the inherent dangers of using the self-billing system. Self-billing is a very useful mechanism for a lot of businesses, especially in respect of activities like royalties and scrap purchases where the supplier may not know (or know immediately) the value of the supply. Before we look at the case, it may be useful to recap the rules for self-billing.

Self-billing is an arrangement between a supplier and a customer. Both customer and supplier must be VAT registered. The customer prepares the supplier’s invoice and forwards a copy to the supplier with the payment. There is no requirement to notify HMRC or get approval for using the arrangement.

If you are the customer

You issue the documentation and you are able to reclaim as input tax the VAT shown on the self-billing invoice.

In order to set up self-billing arrangements with your supplier you are required to:

enter into an agreement with each supplier
review agreements with suppliers at regular intervals
keep records of each of the suppliers who let you self-bill them
make sure invoices contain the required information and are correctly issued

If a supplier stops being registered for VAT then you can continue to self-bill them, but you can’t issue them with VAT invoices. Your self-billing arrangement with that supplier is no longer covered by the VAT regulations.

Self-billing agreements

You can only operate a self-billing arrangement if your supplier agrees to put one in place. If you don’t have an agreement with your supplier your self-billed invoices won’t be valid, and you won’t be able to reclaim the input tax shown on them.

Both parties need to sign a formal self-billing agreement. This is a legally binding document. The agreement must contain:

your supplier’s agreement that you, as the self-biller, can issue invoices on your supplier’s behalf
your supplier’s confirmation that they won’t issue VAT invoices for goods or services covered by the agreement
an expiry date – usually for 12 months’ time but it could be the date that any business contract you have with your supplier ends
your supplier’s agreement that they’ll let you know if they stop being registered for VAT
details of any third party you intend to outsource the self-billing process to

Reviewing self-billing agreements

Self-billing agreements usually last for 12 months. At the end of this you will need to review the agreement to make sure you can prove to HMRC that your supplier agrees to accept the self-billing invoices you issue on their behalf. It’s very important that you don’t self-bill a supplier when you don’t have their written agreement to do so.

Record keeping

If you are a self-biller you’ll need to keep certain records. These are:

copies of the agreements you make with your suppliers
the names, addresses and VAT registration numbers of the suppliers who have agreed that you can self-bill them

If you don’t keep the required records, then the self-billed invoices you issue won’t be proper VAT invoices.

All self-billed invoices must include the statement “The VAT shown is your output tax due to HMRC”.

It is important that a business does not add VAT to self-billed invoices that it issues to suppliers who are not VAT-registered.

A business will only be able to reclaim input tax shown on self-billed invoices if it meets all the record keeping requirements.

If you are a VAT registered supplier

If one of your customers wants to set up a self-billing arrangement with you, they’ll ask you to agree to this in writing. If you agree, they will give you a self-billing agreement to sign.

For VAT purposes you will be required to do all of the following:

sign and keep a copy of the self-billing agreement
agree not to issue any sales invoices to your customer for any transaction during the period of the agreement
agree to accept the self-billing invoices that your customer issues
tell your customer at once if you change your VAT registration number, deregister from VAT, or transfer your business as a going concern

The VAT figure on the self-billed invoice your customer sends you is your output tax. You are accountable to HMRC for output tax on the supplies you make to your customer, so you should check that your customer is applying the correct rate of VAT on the invoices they send you. If there has been a VAT rate change, you will need to check that the correct rate has been used.

The Case

The issues were whether the lack of formalised self-billing agreements disqualified the use of self-billing, and if that was the case, whether alternative evidence should have been accepted to support a claim for input tax. The CoA discharged HMRC’s assessment which was issued to GB Housley – a scrap metal merchant.

The assessment was based on input tax claims made on the basis of the self-billed documents. It was ruled that although the self-billing was used in error, HMRC should have considered alternative evidence and used its discretion on whether to allow the claims on transactions which took place. For this reason, as it is unclear whether HMRC would have assessed if they had considered other information, the assessment should be removed.

A timely warning to ensure that all of the conditions of self-billing arrangements are met, and that this is clearly demonstrable. Ongoing monitoring is crucial for businesses operating self-billing as an overlooked change can affect the VAT treatment.

In this case, it looks like the applicant was rather fortunate, but this outcome cannot be relied on if self-billing is applied incorrectly.

We are able to advise on such agreements, arrangements and accounting.

Crime doesn’t pay……..VAT. Is there tax on illegal activities?

By Marcus Ward 4 January 2017

A gentle introduction to VAT for the new year. A number of people have been surprised to find that crime does pay tax, thank you very much. It seems bad enough that the police should chase and catch you, put you in the dock and send you to prison, without finding that your first visitor is HMRC….

Dodgy perfume?

Goodwin & Unstead were in business selling counterfeit perfume. They were also up-front about what they were doing. Unstead claimed that “Everything I can carry in my vehicle, everything I trade in and sell, is a complete copy of the real thing. I do not sell goods as the real thing. In fact I sell my goods for a quarter of the original price. I am not out to defraud or con the public. I only appeal to the poseurs in life.”

The real manufacturers might have sued these men for passing off the product of their chemistry experiments in trademarked bottles, but it was HMRC who sent them to jail – for failing to register and pay VAT on their sales. The amount they should have collected was estimated at £750,000, which shows that they must have appealed to a great many poseurs.
.
If they had paid the VAT, Customs would have had no problem with them. Their customers must have been reasonably satisfied – if your counterfeit perfume smells something like the real thing, why worry?
They tried to get out of jail with an ingenious argument – if the sale of the perfume was illegal, surely there shouldn’t be VAT on it. It wasn’t legitimate business activity, so it wasn’t something that ought to be taxable. The European Court had no time for this. They pointed out that it would give lawbreakers an advantage over lawful businesses; they wouldn’t have to charge VAT. The judges suggested that maybe people would even deliberately break the law so they could get out of tax; in this case, the only thing that made the trade illegal was treading on someone’s trademark rights, and that was something that might happen at any time in legitimate businesses. The judges said that VAT would apply to any trade which competed in a legal marketplace, even if the particular sales broke the law for some reason. Counterfeit perfume is VATable because real perfume is too. Of course, Customs have traditionally had two main roles – looking for drug smugglers, and dealing with VAT-registered traders. They have generally treated both with much the same suspicion, but the ECJ made it clear in this case that the two sets of customers are completely separate.

“Personal” services?

Customers paid the escort £130, of which £30 was paid to the agency. VAT on £130 or VAT on £30?

The first hearing before the Tribunal went something like this (this may be using artistic licence, but the published summary implies it was so):

HMRC: “We think the VAT should be on £130 because the escorts are acting as agents of the escort business.”
Trader: “No, it’s just £30, the £100 belongs to the escort and is nothing to do with me.”
Tribunal chairman: “All right, tell me a bit about how the business operates.”
Customs: “No.”
Tribunal chairman: “What?”
Customs: “You don’t want to know.”
Tribunal chairman: “How can I decide whether the escorts are acting as agent or principals without knowing how the business operates?”
Customs: “Don’t go there, just give us a decision.”
Tribunal chairman: “Trader, you tell me how the business operates.”
Trader: “I agree with him, you don’t want to know.”
The Tribunal seems to have been a bit baffled by this. They were aware that Customs had a great deal more evidence which had been collected during the course of a thorough investigation, and they asked the parties to go away and decide whether they might let the Tribunal see a bit more of it so they could make a judgement rather than a guess.

What about drugs then?

It’s well-known that you are allowed to smoke dope in some establishments in Amsterdam, although the Dutch authorities are thinking about restricting this to Netherlands’ residents. They may find that such a rule contravenes the European Law on freedom of movement – under the EU treaty, you can’t be meaner to foreigners than you are to your own people just because they are foreign. That’s a nice idea, but individuals and governments keep trying it on. Anyway, the Coffeeshop Siberie rented space to drug dealers who would sell cannabis at tables for people to take advantage of the relaxed atmosphere. Presumably they are preparing to examine passports or local utility bills before making the sale, if only the Dutch are to be allowed to get stoned. Anyway, the Dutch authorities asked the coffee shop’s owners for VAT on the rent paid by the dealers, and the owners appealed to the ECJ. This time, surely, it was sufficiently illegal. Although the consumption of drugs was tolerated, it was still against the law, and it must therefore be not VATable.
The judges pointed out that the coffee shop was not actually selling drugs. They were just providing the space for other people to sell drugs. Although selling drugs was completely illegal, and there was no legitimate market in cannabis, renting space was a normal business activity. Renting space to someone who did something illegal with it was in the same category as the dodgy perfume sales in Goodwin & Unstead: it was a bit illegal, but not illegal enough. The VAT was still due.

Counterfeiting?

In a German case, the ECJ ruled that the importation of counterfeit money was outside the scope of VAT. The Advocate-General observed that a line must be drawn between, on the one hand, transactions that lie so clearly outside the sphere of legitimate economic activity that, instead of being taxed, they can only be the subject of criminal prosecution, and, on the other hand, transactions which though unlawful must nonetheless be taxed, if only for ensuring in the name of fiscal neutrality, that the criminal is not treated more favourably than the legitimate trader’.

So, there you have it, if you are of a criminal disposition, and you want to avoid VAT, funny money is the way to go. Please note, this does not constitute advice…..!

VAT: Latest from the courts – Pole Tax?

By Marcus Ward 20 December 2016

(Pardon the dreadful pun).

The Court of Appeal case of Wilton Park Ltd and Secrets Ltd

Background

The appellant operated an “exotic dancing” club which featured table and lap dancing. It received commission from self-employed dancers which was treated as exempt from VAT. This was on the basis that the commissions were charged on redemption of vouchers (known as Secrets Money) such that it represented the services of dealing with security for money. Customers were able to purchase Secrets Money with the addition of a 20% commission. The vouchers were used to pay individual dancers who subsequently needed to exchange the vouchers for cash. The taxpayer charged a 20% fee for such a conversion.

The issue

The issue was whether face-value vouchers issued by appellant companies constituted “…any security for money” within the VAT Act 1994, Schedule 9, Group 5, item 1. HMRC argued that the redemption of the vouchers was part of a taxable supply of performance facilitation services by the taxpayer and thus standard rated.

Decision

Not surprisingly, the CoA dismissed the appeal, agreeing with both the FTT and UT in holding that the provision of the club’s facilities formed part of the consideration for the commission an consequently was not an exempt supply.

Commentary

This appears a rather desperate appeal, and there still remains the possibility that the taxpayer could take the matter to the Supreme Court. It illustrates that simply putting in a mechanism which adds a degree of complexity does not affect the overriding VAT analysis. What was provided and what was paid for here seems reasonably apparent and it is quite a leap to consider the structure was simply exchanging vouchers for cash. It also occurs that this would be a very straightforward way for other businesses to avoid paying VAT if the appellant had been successful.

For more on this subject (should that be your thing…….) a read of the Spearmint Rhino case not only explores the structure/relationship between dancers and club owners but is also rather good entertainment and provides an amusing yet illustrative overview of the agent/principal issue (and is not salacious in the least…..).

Oops! – Top Ten VAT howlers

By Marcus Ward 16 December 2016

I am often asked what the most frequent VAT errors made by a business are. I usually reply along the lines of “a general poor understanding of VAT, considering the tax too late or just plain missing a VAT issue”. While this is unquestionably true, a little further thought results in this top ten list of VAT horrors:

Not considering that HMRC may be wrong. There is a general assumption that HMRC know what they are doing. While this is true in most cases, the complexity and fast moving nature of the tax can often catch an inspector out. Added to this is the fact that in most cases inspectors refer to HMRC guidance (which is HMRC’s interpretation of the law) rather to the legislation itself. Reference to the legislation isn’t always straightforward either, as often EC rather than UK domestic legislation is cited to support an analysis. The moral to the story is that tax is complicated for the regulator as well, and no business should feel fearful or reticent about challenging a HMRC decision.
Missing a VAT issue altogether. A lot of errors are as a result of VAT not being considered at all. This is usually in relation to unusual or one-off transactions (particularly land and property or sales of businesses). Not recognising a VAT “triggerpoint” can result in an unexpected VAT bill, penalties and interest, plus a possible reduction of income of 20% or an added 20% in costs. Of course, one of the basic howlers is not registering at the correct time. Beware the late registration penalty, plus even more stringent penalties if HMRC consider that not registering has been done deliberately.
Not considering alternative structures. If VAT is looked at early enough, there is very often ways to avoid VAT representing a cost. Even if this is not possible, there may be ways of mitigating a VAT hit.
Assuming that all transactions with overseas customers are VAT free. There is no “one size fits all” treatment for cross border transactions. There are different rules for goods and services and a vast array of different rules for different services. The increase in trading via the internet has only added to the complexity in this area, and with new technology only likely to increase the rate of new types of supply it is crucial to consider the implications of tax; in the UK and elsewhere.
Leaving VAT planning to the last minute. VAT is time sensitive and it is not usually possible to plan retrospectively. Once an event has occurred it is normally too late to amend any transactions or structures. VAT shouldn’t wag the commercial dog, but failure to deal with it at the right time may be either a deal-breaker or a costly mistake.
Getting the option to tax wrong. Opting to tax is one area of VAT where a taxpayer has a choice. This affords the possibility of making the wrong choice, for whatever reasons. Not opting to tax when beneficial, or opting when it is detrimental can hugely impact on the profitability of a project. Not many businesses can carry the cost of, say, not being able to recover VAT on the purchase of a property, or not being able to recover input tax on a big refurbishment. Additionally, seeing expected income being reduced by 20% will usually wipe out any profit in a transaction.
Not realising a business is partly exempt. For a business, exemption is a VAT cost, not a relief. Apart from the complexity of partial exemption, a partly exempt business will not be permitted to reclaim all of the input tax it incurs and this represents an actual cost. In fact, a business which only makes exempt supplies will not be able to VAT register, so all input tax will be lost. There is a lot of planning that may be employed for partly exempt businesses and not taking advantage of this often creates additional VAT costs.
Relying on the partial exemption standard method to the business’ disadvantage. A partly exempt business has the opportunity to consider many methods to calculate irrecoverable input tax. The default method, the “standard method” often provides an unfair and costly result. I recommend that any partly exempt business obtains a review of its activities from a specialist. I have been able to save significant amounts for clients simply by agreeing an alternative partial exemption method with HMRC.
Not taking advantage of the available reliefs. There are a range of reliefs available, if one knows where to look. From Bad Debt Relief, Zero Rating (VAT nirvana!) and certain de minimis limits to charity reliefs and the Flat Rate Scheme, there are a number of easements and simplifications which could save a business money and reduce administrative and time costs.
Forgetting the impact of the Capital Goods Scheme. The range of costs covered by this scheme has been expanded recently. Broadly, VAT incurred on certain expenditure is required to be adjusted over a five or ten year period. Failure to recognise this could either result in assessments and penalties, or a position whereby input tax has been under-claimed. The CGS also “passes on” when a TOGC occurs, so extra caution is necessary in these cases.

So, you may ask: “How do I make sure that I avoid these VAT pitfalls?” – And you would be right to ask.

Of course, I would recommend that you engage a VAT specialist to help reduce the exposure to VAT costs!

VAT – A Christmas Tale

By Marcus Ward 12 December 2016

Well, it is Christmas….

Dear Marcus

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities. May I explain what I do and then you can write to me with your advice? If you think a face to face meeting would be better I can be found in most decent sized department stores from mid September to 24 December.

First of all I am based in Greenland but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Am I making supplies in the UK?

The toys are of course mainly for children and I wonder if zero rating might apply? I have heard that small T shirts are zero rated so what about a train set – it is small and intended for children. Does it matter if adults play with it?

My friend Rudolph has told me that there is a peculiar rule about gifts. He says that if I give them away regularly and they cost more than £150 I might have to account for VAT. Is that right?

My next question concerns barter transactions. Dads often leave me a food item such as a mince pie and a drink and there is an unwritten rule that I should then leave something in return. If I’m given Tesco’s own brand sherry I will leave polyester underpants but if I’m left a glass of Glenfiddich I will be more generous and leave best woollen socks. Have I made a supply and what is the value please? My feeling is that the food items are not solicited so VAT might not be due and, in any event; isn’t food zero-rated, or is it catering? Oh, and what if the food is hot?

Transport is a big worry for me. Lots of children ask me for a ride on my airborne transport. I suppose I could manage to fit 12 passengers in. Does that mean my services are zero-rated? If I do this free of charge will I need to charge air passenger duty? Does it matter if I stay within the UK? My transport is the equivalent of six horse power and if I refuel with fodder in the UK will I be liable for fuel scale charges? After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home. Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay VAT. Please comment.

Can I also ask about VAT registration? I know the limit is £83,000 per annum but do blips count? If I do make supplies at all, I do nothing for 364 days and then, in one day (well night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration? If I do need to register should I use AnNOEL Accounting? At least I can get only one penalty per annum if I get the sums wrong.

I would like to make a claim for input tax on clothing. I feel that my red clothing not only protects me from the extreme cold but it is akin to a uniform and should be allowable. These are not clothes that I would choose to wear except for my fairly unusual job. If lady barristers can claim for black skirts I think I should be able to claim for red dress. And what about my annual haircut? That costs a fortune. I only let my hair grow that long because it is expected of me.

Insurance worries me too. You know that I carry some very expensive goods on my transport. Play Stations, Mountain Bikes, i-pads and Accrington Stanley replica shirts for example. My parent company in Greenland takes out insurance there and they make a charge to me. If I am required to register for VAT in England will I need to apply the reverse charge? This seems to be a daft idea if I understand it correctly. Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again?

Next you’ll be telling me that Father Christmas isn’t real……….

HAPPY CHRISTMAS EVERYBODY!

VAT Splitting a business to avoid registration: Disaggregation

By Marcus Ward 8 December 2016

I have a cunning plan to avoid registering for VAT…….

….I’ll simply split my business into separate parts which are all under the VAT registration turnover limit – ha!

I’ve heard this said many a time in “bloke in the pub” situations. But is it possible?

You will not be surprised to learn that HMRC don’t like such schemes and there is legislation and case law for them to use to attack such planning known as “disaggregation”. This simply means artificially splitting a business.

What HMRC will consider to be artificial separation:

HMRC will be concerned with separations which are a contrived device set up to circumvent the normal VAT registration rules. Whether any particular separation will be considered artificial will, in most cases, depend upon the specific circumstances. Accordingly it is not possible to provide an exhaustive list of all the types of separations that HMRC will view as artificial. However, the following are examples of when HMRC would at least make further enquiries:

Separate entities supply registered and unregistered customers

In this type of separation, the registered entity supplies any registered customers and the unregistered part supplies unregistered customers.

Same equipment/premises used by different entities on a regular basis

In this type of situation, a series of entities operates the same equipment and/or premises for a set period in any one-week or month. Generally the premises and/or equipment is owned by one of the parties who charges rent to the others. This situation may occur in launderettes and take-aways such as fish and chip shops or mobile catering equipment.

Splitting up of what is usually a single supply

This type of separation is common in the bed and breakfast trade where one entity supplies the bed and another the breakfast. Another is in the livery trade where one entity supplies the stabling and another, the hay to feed the animals. There are more complex examples, but the similar tests are applied to them too.

Artificially separated businesses which maintain the appearance of a single business

A simple example of this type of separation includes; pubs in which the bar and catering may be artificially separated. In most cases the customer will consider the food and the drinks as bought from the pub and not from two independent businesses. The relationship between the parties in such circumstances will be important here as truly franchised “shop within a shop” arrangements will not normally be considered artificial.

One person has a controlling influence in a number of entities which all make the same type of supply in diverse locations

In this type of separation a number of outlets which make the same type of supplies are run by separate companies which are under the control of the same person. Although this is not as frequently encountered as some of the other situations, the resulting tax loss may be significant.

The meaning of financial, economic and organisational links

Again each case will depend on its specific circumstances. The following examples illustrate the types of factors indicative of the necessary links, although there will be many others:

Financial links

financial support given by one part to another part
one part would not be financially viable without support from another part
common financial interest in the proceeds of the business

Economic links

seeking to realise the same economic objective
the activities of one part benefit the other part
supplying the same circle of customers

Organisational links

common management
common employees
common premises
common equipment

HMRC often attack structures which were not designed simply to avoid VAT registration, so care should be taken when any entity VAT registers, or a conscious decision is made not to VAT register. Registration is a good time to have a business’ activities and structure reviewed by an adviser.

As with most aspects of VAT, there are significant and draconian penalties for getting registration wrong, especially if HMRC consider that it has been done deliberately to avoid paying VAT.

VAT – EC proposal for new rules for e-commerce and online businesses

By Marcus Ward 1 December 2016

The EC has announced measures to simplify VAT for e-commerce businesses in the EU. The proposals will purportedly allow consumers and businesses to buy and sell goods and services more easily online.

New VAT rules for sales and goods and services online

Currently, online traders have to register for VAT in all the Member States to which they sell goods. Often cited as one of the biggest barriers to cross-border e-commerce, these VAT obligations cost businesses around €8,000 for every EU country into which they sell. We are now proposing that businesses make one simple quarterly return for the VAT due across the whole of the EU, using the online VAT One Stop Shop. This system already exists for sales of e‑services such as mobile phone apps, and has been proven successful with more than €3 billion in VAT being collected through the system in 2015. Administrative burdens for companies will be reduced by a staggering 95%, giving an overall saving to EU business of €2.3 billion and increasing VAT revenues for Member States by €7 billion.

Simplifying VAT rules for micro-businesses and start-ups

A new annual threshold of €10,000 in online sales will be introduced under which businesses selling cross-border can continue to apply the VAT rules they are used to in their home country. This will make complying with VAT rules easier for 430,000 companies across the EU, representing 97% of all micro-business trading cross‑border. A second new yearly threshold of €100,000 will make life easier for SMEs when it comes to VAT, with simplified rules for identifying where their customers are based. The thresholds could be applied as early as 2018 on e‑services, and by 2021 for online goods. Other simplifications would allow the smallest businesses to benefit from the same familiar VAT rules of their home country, such as invoicing requirements and record keeping. The first point of contact will always be with the tax administration where the business is located and businesses will no longer be audited by each Member State where they have sales.

VAT fraud from outside the EU – Removal of Low Value Consignment (LVC) relief

Small consignments imported into the EU that are worth less than €22 are currently exempt from VAT. With around 150 million parcels imported free of VAT into the EU each year, the EC says that this system is open to massive fraud and abuse, creating major distortions against EU business. Firstly, EU businesses are put at a clear disadvantage since unlike their non-EU competitors, they are liable to apply VAT from the first eurocent sold. Secondly, imported high-value goods such as smartphones and tablets are consistently undervalued or wrongly described in the importation paperwork in order to benefit from this VAT exemption. The Commission has therefore decided to remove LVC relief

Equal rules for taxing e-books, e-newspapers and their printed equivalents

Current rules allow Member States to tax printed publications such as books and newspapers at reduced rates or, in some cases, super-reduced or zero rates. The same rules exclude e-publications, meaning that these products must be taxed at the standard rate. Once agreed by all Member States, the new set-up will allow (but not oblige) Member States to align the rates on e-publications to those on printed publications.

Action

Please contact us if any of the above affects your business or your client’s businesses.

VAT Snippet – e-supplies to Russia

By Marcus Ward 1 December 2016

New VAT rules for B2C supplies to Russian recipients

If your business, or your client’s business provide electronically supplied services to private consumers* in Russia new rules will require foreign (“non-established“) businesses to register and pay VAT on their supplies.

These rules will come into effect from 1 January 2017.

Supplies of such services will be subject to the Russian standard VAT rate of 15.25% of gross revenue.

For the purposes of this legislation electronically supplied services include (but are not limited to):

e-books
streaming of music and film
online access to games and download of games to electronic devices
services of social networking sites
cloud computing
hosting of websites
access to search engines
internet service providers
broadcasting of TV or radio channels
online advertising
data storage,
and other similar services

This definition broadly follows the definition for EU supplies.

Quarterly VAT returns will be required, however, there will be no right to recover input tax on these returns.

Place of belonging

As with any e-sales, it is important to have a procedure in place in order to establish the place of belonging of all customers as this will dictate what (if any) VAT is applicable, and to which authority payment should be made. In broader terms, the rules for Distance selling must also be adhered to. Guide here

* Russian definition of place of an individual customer – A “private consumer” is deemed to be in Russia if his/her living place is in Russia; or if he/she purchased the service by using a Russian bank (or a Russian electronic money operator), a network address registered in Russia, or a phone number with the Russia’s country code.

This follows an international trend as may be seen with similar developments here

If you are affected by this new VAT legislation, please contact us. We have a worldwide network which can take the pain out of international VAT compliance and avoid a business inadvertently triggering swingeing penalties and interest overseas. Please see further details of this service here