VAT - Buying and selling goods and services within the EU Hello - PowerPoint PPT Presentation

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VAT - Buying and selling goods and services within the EU Alex Millar FMAAT CTA AIIT Director- AM VAT Limited 1 May 2014

Seminar content • An overview of: • VAT on intra-EU supplies of goods and services. • The distance selling rules. • New rules for broadcasting, telecommunications and e-services sold to consumers from 1 January 2015.

VAT in the EU • The UK is one of the 28 Member States of the EU - Croatia became a Member State on 1 July 2013. • The VAT law in each Member State should reflect the objectives of the EU Principal VAT Directive. • Rules determine which Member State’s VAT applies to intra-EU supplies of goods and services.

The general rule for intra-EU supplies • For business to business (B2B) sales VAT is due in the Member State where the customer belongs. • For business to consumer (B2C) sales VAT is due in the Member State where the supplier belongs. • There are exceptions to the general rule.

Example 1 – Goods bought • Ann, a VAT registered accountant based in the UK, needs new office equipment for her business. • Ann orders the goods from a supplier in Poland. • What is the VAT treatment of the goods?

Example 1 - What is the VAT treatment of the goods? A. The supplier in Poland should zero-rate the sale. B. The UK customer (Ann) should account for the UK VAT. C. Both A and B. D. The supplier in Poland should charge UK VAT.

Example 1 - What is the VAT treatment of the goods? • For B2B sales VAT is due in the Member State (the UK) where the customer (Ann) belongs. If the supplier in Poland registered for VAT in the UK it could charge UK VAT (D). However, instead of this… • The supplier in Poland can zero-rate the sale and show Ann’s UK VAT number on the invoice (A) • Ann should include the UK VAT due on the computer in box 2 of her VAT return (B) • Answer C – both A and B.

Goods bought - What are the UK VAT return entries? • The UK VAT due on goods acquired by a UK business from a supplier in another EU Member State should be included in box 2. • The appropriate amount of input tax is claimed in box 4. • The VAT exclusive value of the goods acquired, and related costs such as delivery charges included on the same invoice as the goods, should be included in boxes 7 and 9.

Example 2 – Goods sold • Ben, a VAT registered wholesaler based in the UK, sells desks to VAT registered businesses throughout the EU (B2B) • Ben receives an order from a customer in Italy • What is the VAT treatment of the goods?

Example 2 - What is the VAT treatment of the goods? A. Ben should zero-rate the sale B. The Italian customer should account for the Italian VAT C. Both A and B D. Ben should charge Italian VAT

Example 2 - What is the VAT treatment of the goods? • For B2B sales VAT is due in the Member State where the customer belongs. If Ben registered for VAT in the Italy he could charge Italian (D) However, instead of this … • Ben can zero-rate the sale and show the Italian customer’s VAT number on the invoice (A). • The Italian customer should account for the Italian VAT (B). • Answer C – both A and B.

Goods - Triangulation • Triangulation is the term used to describe a chain of intra-EU supplies of goods involving three parties in different Member States. • The goods are delivered directly from the first party to the last party in the chain.

Example 3 - Triangulation • • A German company orders goods from a UK company and the goods are delivered from a French company to the German company.

Example 3 - Triangulation • The UK company is the French company’s customer and will receive an invoice from the French company. • The French supplier can zero-rate the sale and show the UK company’s VAT number on the invoice. • The UK company is both acquiring and supplying the goods in Germany so would normally be required to register for VAT in Germany unless a simplified VAT procedure is used.

Example 3 - Triangulation • The simplified procedure avoids the need for the UK company having to register for VAT in Germany. • The simplified procedure means that the UK company can zero-rate the sale and show the German company’s VAT number on the invoice. • The simplified procedure can only be used when all three parties are registered for VAT.

Example 4 – Services bought • Kim uses a Spanish business to provide her UK business with IT support services. • What is the VAT treatment of the services?

Example 4 - What is the VAT treatment of the services? A. The Spanish supplier should charge Spanish VAT B. Kim should charge herself UK VAT C. The Spanish supplier should charge UK VAT

Example 4 - What is the VAT treatment of the services? • For B2B sales VAT is due in the Member State where the customer belongs • For B2C sales VAT is due in the Member State where the supplier belongs • The services are provided to Kim’s business (B2B) so Kim can charge herself UK VAT via the reverse charge (B)

What is the reverse charge? • For business to business (B2B) sales the general rule is that VAT is due in the Member State where the customer belongs • The reverse charge applies to most B2B supplies of services, except services that are exempt from VAT or are zero-rated • The reverse charge occurs when the customer accounts for VAT as if the customer was the supplier

What are the UK VAT return entries? • The UK VAT due on the services is included in box 1 (reverse charged as if the customer was the supplier) • The appropriate amount of input tax is claimed in box 4 (as normal) • The value of the supply is included in box 6 (as if the customer was the supplier) • The value of the supply is included in box 7 (as normal)

Example 5 – Services sold • Dan is a VAT registered accountant based in the UK. • Most of Dan’s clients are based in the UK but some are based in Belgium. • He prepares accounts for businesses (B2B) and personal tax returns for individuals (B2C). • When should Dan charge UK VAT?

Example 5 - When should Dan charge UK VAT? A. On all invoices. B. Only on the invoices issued to UK clients. C. On the invoices issued to UK clients and to businesses in Belgium. D. On the invoices issued to UK clients and to consumers in Belgium.

Example 5 - When should Dan charge UK VAT? • Remember the general rule: • For B2B sales VAT is due in the Member State where the customer belongs. • For B2C sales VAT is due in the Member State where the supplier belongs. • The correct answer is D - on the invoices issued to UK clients and to consumers in Belgium.

Intra-EU transactions - Other reporting requirements • An EC Sales List (ESL) should be submitted showing details of goods and services sold to VAT registered customers in other Member States • An Intrastat Supplementary Declaration should be submitted if the value of arrivals (goods bought from) or dispatches (goods sold to) VAT registered businesses in other Member States exceeds certain thresholds.

Intrastat Supplementary Declaration thresholds • From 1 January 2014 the Intrastat Supplementary Declaration threshold for: • Arrivals is £1,200,000 • Dispatches is £250,000

The general rule for intra-EU supplies • For business to business (B2B) sales VAT is due in the Member State where the customer belongs. • For business to consumer (B2C) sales VAT is due in the Member State where the supplier belongs. • There are exceptions to the general rule.

Exceptions to the general rule • For details of exceptions to the general rule see: • HMRC Notice 725 (The single market). • HMRC Notice 741A (Place of supply of services). • An example of an exception to the general rule is B2C sales of goods that exceed the distance selling thresholds.

Distance selling • The general rule for B2C sales is that VAT is due in the Member State where the supplier belongs. • Distance selling is the term used to describe sales of goods to customers in other Member States where the customer is not registered for VAT and the supplier is responsible for delivery of the goods. • Examples of businesses involved in distance selling are mail order companies and online retailers.