The basic principle of value added tax (VAT) is that the government gets a percentage of the value that is added at each step of an economic chain, which ends with the consumption of the goods or services by an individual. While VAT is paid by all parties in the chain, including the end customer, only businesses can deduct their input tax. For this reason, VAT requirements concerning invoices generally only apply between businesses.
Many governments use invoices as primary evidence in determining “indirect” taxes owed to them by companies. VAT is by far the most significant indirect tax for nearly all the world’s trading nations. Broadly speaking, it contributes over 30% of all public revenue. VAT as a tax method essentially turns private companies into tax collectors. The role of assessing the tax is critical which is why these taxes are sometimes referred to as “self-assessment taxes”.
VAT depends on companies meeting public law obligations as an integral part of their sales, purchasing and general business operations. The dependency on companies to process and report VAT makes it necessary for tax authorities to audit or otherwise control business transactions. But despite such audits, fraud and malpractice often cause governments to collect significantly less VAT than they should. The difference between the expected VAT revenue and the amount actually collected is the VAT gap.
In Europe, that VAT gap amounts to approximately €140 billion every year, according to the latest report from the European Commission. This amount equates to a loss of 11% of the expected VAT revenue across the EU. Globally, we estimate VAT due but not collected by governments because of errors and fraud could be as high as half a trillion EUR. This is comparable to the GDP of countries like Norway, Austria or Nigeria.
The VAT gap represents some 15-30% of VAT that should be collected worldwide. And these figures would certainly be much higher if lost tax revenue from unregistered business activity is added as the numbers only include bona fide, registered business activity.
Governments across the globe are enacting complex new policies to enforce VAT mandates. Through these mandates, they obtain unprecedented insight into economic data and close revenue gaps. Tax authorities are steadfast in their commitment to closing the VAT gap and will use all the tools at their disposal to collect revenue owed. This holds especially true in the aftermath of COVID-19 when governments epxect to face significant budget shortfalls.
To close the VAT gap, countries are pushing tax authorities to comply with VAT requirements. As a result, they’re enforcing different legal consequences for irregularities. The consequences on noncompliance with VAT requirements can be huge. Most companies therefore want to be as certain as possible that they can quickly and easily prove their VAT compliance to avoid risks including:
At a time when the requirements from tax authorities globally are only set to increase, it’s clear that businesses need to be aware of the compliance challenges they face and prepare for what lies ahead.
Download VAT Trends: Toward Continuous Transaction Controls for a comprehensive look at the VAT regulatory landscape
The UK entered into a new relationship with the EU on 1 January 2021. The Transition Period ended and the EU-UK Trade and Cooperation Agreement (TCA) came into force. The UK fully implemented this into law but applied on a provisional basis by the EU. The European Parliament needs to ratify it. This is due by 28 February 2021. However there is a potential to extend this deadline.
However, irrespective of the status of the TCA, there have been a number of changes which have affected how goods move between Great Britain and the EU. It’s important to distinguish between Great Britain and the UK. This is because of the Northern Ireland Protocol which means that EU VAT rules continue to apply in Northern Ireland.
Even businesses that have carefully prepared are finding it challenging to navigate the new system.
There are a number of key factors that need to be considered.
An EORI number is essential for communicating with the customs authorities. So it is a must have for importing or exporting goods from the EU. Also from GB and Northern Ireland. A GB EORI is required for importing and exporting from Great Britain with an XI EORI required for Northern Ireland. It is only possible to have a single EU EORI and as the XI EORI is treated as an EU EORI number, the authorities in some Member States are cancelling EORIs issued in their country.
In both the EU and the UK, non-established businesses will need an indirect representative for customs purposes. There is a shortage and demand is high so it’s essential that appropriate arrangements are in place in advance of imports and exports taking place.
The TCA was heralded as the solution to all problems, but it only applies in specific circumstances and the origin of the goods is key. This is a new area for many businesses and the rules can be complex so need to be fully considered.
If the TCA or another FTA does not apply, it will be necessary to determine the rate of duty that will apply. The EU continues to apply the Common Customs Tariff but the UK introduced a new Global Tariff which applies from 1 January 2021 that needs to be considered.
The UK introduced postponed import VAT accounting which allows accounting for import VAT on the VAT return. This is not compulsory but provides a valuable cashflow benefit if applied. It has to be claimed when the customs declaration is submitted so appropriate instructions will have to be given to whoever is submitting the declaration.
The position varies around the EU. Not all Member States are offering postponed accounting and where it is available, the conditions for its use vary. It’s therefore essential to consider this to maximise cashflow.
There are many challenges to trading between the EU and the UK and goods can no longer move freely as they need to clear customs. Planning is therefore essential to ensure that goods can reach their destination without delay and commercial relationships do not suffer. Once the goods have reached their destination, it is necessary to consider the subsequent VAT treatment which needs to be done on a country by country basis especially for B2B supplies as rules can vary.
Keen to know how Brexit and the EU-UK Trade Cooperation Agreement will impact your VAT compliance obligations? Download our Brexit and VAT whitepaper or watch our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more
There is a plethora of misinformation and misconceptions surrounding Brexit and tax. The aim of this blog is to dispel such myths and clear up any confusion. We will dig deeper into news stories to explain the facts and keep you informed.
Immediately following the end of the transition period and the beginning of Brexit, the UK launched a ‘unique taxation regime’. This is in respect of importing goods for sale to private individuals.
A Dutch bike company posted an article on its website inviting readers to contact their elected representative in the UK. They asked them to complain about the new tax changes that prevented them from selling to UK customers.
This was picked up by several media outlets including the BBC “EU firms refuse UK deliveries over Brexit tax changes.”
Sellers established outside the UK charge UK VAT to private individuals where the shipment value is less than £135. As stated in a change to UK VAT law introduced on 1 January 2021.
The intention is to protect UK businesses from cheap foreign imports and to increase the tax take. The abolishment of ‘low value consignment relief’ (LVCR) achieved this. Ensuring payment of VAT on the real value of the goods.
For example, last year I could have gone on to Amazon to buy cycle parts. I might find that an EU cycle company would charge me £18 for a spare part. However, the same parts from a supplier in South East Asia might cost me £15.
This is because EU cycle parts companies must charge EU VAT (either NL or UK). Whereas the supplier outside of the EU could use Low Value Consignment Relief (LVCR) to legally bypass the payment of VAT. Some suppliers exploited this relief further by declaring that goods worth £30 were only worth £15. An example of fraudulent application of the LVCR.
But the decision to abolish LVCR is not a ’unique taxation regime’ launched by the UK. It already exists in several other countries including Australia, Norway and Switzerland and will soon be introduced by the EU.
EU vendors complained for years about unfair competition and the EU was also concerned by the loss of VAT revenue.
Taking this into account the EU launched a consultation period. The result was the E-Commerce VAT Package. It requires VAT payment by the vendor when importing goods into the EU and sold to private individuals; where the goods value is less than €150. The abolishment of LVCR is also part of this package.
The EU delayed the package, originally due for implementation on 1 January 2021, until 1 July 2021. As can be seen from the above, this will create similar issues as currently mentioned by some EU suppliers. They will, ironically, be the beneficiaries of this ‘unique taxation regime’. These suppliers will no longer face unfair price competition from suppliers outside of the EU.
The UK identified the same issues of unfair competition and tax leakage. On 1 January 2021 introduced legislation requiring vendors to account for VAT when importing goods with a value below £135 and sold to private individuals.
It is a fact that additional costs will incur in respect of customs formalities when importing goods into both the UK and the EU.
New rules mean goods shipped to EU countries are now liable for VAT when they enter the single market. A story appeared in Yahoo Finance with the headline “£34bn Brexit bill pushes companies to the brink”, where a tax reclaim company had estimated that levies could add £34bn ($47m) to the cost of UK trade with the EU.
The predication is that new post-Brexit VAT rules are adding billions of pounds to operating costs with import VAT. Possibly as high as 27%, imposed as a cost.
Darren Jones MP, the chair of the Commons’ Business, Energy and Industrial Strategy Select Committee, described the increased costs as a “kick in the teeth” for businesses and asked for the government to intervene.
But the £34bn ‘cost’ is just a myth.
Any business importing goods into the EU need to pay import VAT on the relevant value. After importing the goods into the EU, they will normally be sold and be subject to local VAT – as is the case when importing goods into the UK and sold locally.
VAT is a neutral tax for business. So there is no real possibility of UK companies losing £34bn (or any VAT at all) if they act appropriately.
For example, a UK business imports goods into Germany from Great Britain and then sells them. Normally there is a requirement for the UK company to obtain a German VAT number and charge German VAT to its customer. It then offsets the import VAT it has paid against the output VAT it charges and remits the balance to the German tax authority.
When goods are imported ready for sale the import value is the same as the sales value. So, if a UK company imports goods worth €10,000 into Germany where no duty is applicable it will pay import VAT of €1,900. It will then sell these goods for €10,000 and charge €1,900 of output VAT. The import VAT is offset against the output VAT meaning all import VAT is fully recovered. There will, of course, be professional costs incurred in dealing with the German tax authority.
There are now 27 EU Member States and the VAT rules are not unified. It’s therefore possible that a UK business could incur import VAT and not have the requirement to charge output VAT so that offset isn’t possible.
In this case there is a refund mechanism to enable the UK company to recover the import VAT. Once again, there is a cost associated with this. However, Member States can refuse to accept a claim so that the import VAT is a real cost.
In short, import VAT is not a £34bn cost if businesses manage their affairs efficiently and compliantly. Changing incoterms so that the customer is the importer would solve all these problems. A full and thorough analysis of the position would enable UK businesses to recover import VAT and remain compliant, thereby reducing the possibility of penalties.
Similar principles apply to sales to private individuals. UK companies making such sales should also be able to benefit from the principle of tax neutrality if they act appropriately.
Keen to know how Brexit will impact your VAT compliance? Download our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
The EU-UK Trade and Co-operation Agreement (TCA) was finally agreed on 24 December 2020. A week before the end of the transition period. Fully implemented into UK law, but the TCA remains provisional. It needs to be ratified in the European Parliament. Therefore it applies on a provisional basis until 28 February 2021.
The TCA covers several areas in addition to trade between the EU and UK dealing with investment, competition, State aid, maintaining a level playing field, fisheries and data protection. It was some of these areas that proved to be the most difficult to resolve during the negotiations.
The TCA provides for trade in goods between the UK and the EU to be on a zero tariff, zero quota basis. However, only if the goods meet the appropriate rules of origin. This reflects the reality that the TCA is not a replacement for the Customs Union. The Customs Union meant that once goods were in free circulation in the EU, they could move from one Member State to another without further payment of customs duty.
The TCA is different, and the origin of the goods is key. There are specific rules on determining origin and a system of self-certification is in place. For example, if goods are of Chinese origin, they won’t be covered by the TCA. So would be subject to whatever rate of customs duty applies in the EU when exported from Great Britain to the EU. This is in addition to customs duty that would apply in the UK based on the UK Global Tariff unless there was the application of an appropriate suspensive relief on arrival into the UK.
The TCA also covers mutual assistance around VAT. These mutual assistance provisions may have an impact on the requirement for UK companies to appoint a fiscal representative in those countries where it’s required. However, until Member States formally change their requirements, it’s important that businesses meet their legal obligations as they currently stand.
Failure to appoint a fiscal representative when required may result in penalties imposed for not trading compliantly. In some cases could interrupt commercial transactions to the detriment of both the company and its customers.
The mutual assistance provisions may also have an impact on the requirement for UK companies to appoint an intermediary for the purposes of the Import One Stop Shop (IOSS). IOSS is proposed for implementation on 1 July 2021. The EU has a mutual assistance agreement with Norway. This means that Norwegian companies don’t need to appoint an intermediary for the purposes of IOSS. It’s hoped that the EU will extend this to companies in Great Britain.
The VAT position of trade between the UK and the EU was largely known before the TCA was signed and is therefore not significantly impacted by the TCA. It was the UK ceasing to be a Member State and leaving the EU VAT area which determined the changes.
As a result, many businesses were able to take proactive action rather than awaiting the finalisation of the TCA. If a business did not take action to ensure ongoing VAT compliance, it’s essential to take the appropriate steps now. Furthermore, if businesses had a Brexit action plan, it is imperative that it’s implemented fully to remove risk.
The presence of a Customs border between the UK and EU means that goods cannot flow freely as they did in the past. Taking the appropriate steps to allow the goods to move is not the end of the story. Ensuring VAT compliance once the goods have arrived in the EU is essential. As is recognising that not all Member States have the same requirements.
All businesses should review their current trading arrangements. Business need to ensure they are compliant and also that they’re trading in the most efficient way.
Keen to know how Brexit will impact your VAT compliance obligations? Download our Brexit and VAT whitepaper or watch our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
We recently launched the 12th Edition of our Annual Trends Report. We put a spotlight on current and near-term legal requirements across regions and VAT compliance domains. The report, “VAT Trends: Toward Continuous Transaction Controls” is authored by a team of international tax compliance experts and provides a comprehensive look at the regulatory landscape as governments across the globe are enacting complex new policies to enforce VAT mandates, obtain unprecedented insight into economic data and close revenue gaps.
Central to this year’s edition is our focus on four emerging tax mega-trends with potential to drive change in the way multinational businesses approach regulatory reporting and manage tax compliance.
The mega-trends include:
According to Christiaan van der Valk, lead author of the report and vice president of strategy at Sovos, continuous transaction controls have emerged as the primary concern for multinational companies looking to ensure tax compliance despite growing diversity in VAT enforcement approaches. Tax authorities are steadfast in their commitment to closing the VAT gap. As a result they will use all tools at their disposal to collect revenue owed. This holds especially true for the aftermath of COVID-19, when governments are expected to face unprecedented budget shortfalls.
Beyond the mega-trends, our report includes a major review of country and regional requirement profiles. These profiles provide a snapshot of current and near-term planned legal requirements across the different VAT compliance domains. The report also examines how governments have embraced digital transformation to speed revenue collection, decrease fraud and narrow VAT gaps.
“VAT Trends: Toward Continuous Transaction Controls” is the most comprehensive report of its kind. It provides an objective view of the VAT landscape with unbiased analysis from tax and regulatory experts with years of experience navigating the world’s most complex tax environments. If you are a tax, IT or legal professional working with multi-national companies, we strongly encourage you to download and become familiar with the subject-matter contained within. The pace of change for tax and regulatory environments is accelerating and this report will get you prepared.
The European Union’s VAT E-Commerce Package has been delayed until 1 July 2021. Consequently, in the New Year businesses will have to contend with both Brexit related VAT changes and the impact of the One Stop Shop – amounting to two new set of rules for VAT reporting in 2021.
From 1 July 2021, the EU introduces new rules extending the Mini One Stop Shop (MOSS) to B2C supplies. The rules apply where VAT is due in a Member State other than that in which the supplier is established and intra-EU B2C supplies of goods. These rules are currently available for VAT accounting on B2C sales of Telecommunications, Broadcasting and Electronic Services (TBES). The new system, known as the One Stop Shop (OSS), had an original launch date of 1 January 2021.
OSS will abolish current distance selling thresholds. In addition, all intra-EU supplies of B2C TBES services plus intra-EU distance sales of goods will operate under the same €10,000 limit. When this limit is exceeded, VAT will be due in the Member State of delivery. This is regardless of the level of sales in that country. Important to note is that this threshold applies to EU established companies and will not apply to UK businesses.
A single VAT return accounts for Any VAT due can be accounted for via a single VAT return, submitted in the Member State of Identification – the country in which the business is registered for OSS. Any company established in the EU will use the country in which they operate as the Member State of Identification. If there is no business establishment in the EU, then a Member State can be chosen. Provisions also apply to non-EU businesses supplying services in the form of the non-union OSS scheme. OSS is not compulsory – businesses can choose to have a registration in all Member States where VAT is due.
The dispatch of goods from physical locations, such as warehouses in the EU, will continue to be treated as distance selling. If any thresholds are exceeded, VAT will be due in the Member State of delivery.
Consequently, OSS will be available to all sales of goods, regardless of their value. OSS accounts for VAT in the Member State of Identification at the rate in place in the country where VAT is due. That is the Member State of Consumption. Any VAT owed will be paid to the Member State of Identification, and OSS returns must be submitted.
If the UK is not treated as a Member State at the time in which goods are dispatched from its territory, the sale will not fall under the Distance Selling regime. The goods will be treated in line with their intrinsic value, with differences above and below €150.
Goods imported from third countries or territories to customers in the EU up to an intrinsic value of €150 will be covered by an import scheme. Like the system being implemented in the UK from 1 January 2021. This import scheme accompanies the abolition of the current VAT exemption for goods in small consignments of a value of up to €22. However, if goods have a value above €150, VAT cannot be accounted for under IOSS and a full customs declaration will be needed.
Goods imported from third territories or third countries in consignments with an intrinsic value of less than €150 using an electronic interface such as a marketplace, platform, portal or similar means, will also be treated differently. This applies to sales via platforms such as Amazon. Under the changes, the platform will be deemed to have received and supplied goods in their own right. Interestingly, it’s irrelevant whether the goods are supplied by EU or non-EU suppliers. The marketplace rules also apply to non-EU sellers supplying goods via a marketplace where the goods are already located in the EU at the time of sale.
Until the application of the new rules, Member States must transpose the new rules of the VAT Directive. The Directive is already in place into their national legislation. Some Member States already are doing this. Though as yet unconfirmed, many believe OSS could be further delayed. Both the Netherlands and Germany have concerns about preparedness for the July 2021 start date.
For UK businesses, Brexit makes things particularly complex. After the implementation of OSS, UK businesses can make use of the e-commerce package changes. However, during the 6-month delay in 2021, registrations and fiscal representatives could be necessary for a short time. It’s essential businesses plan their supply chain with all the upcoming changes in mind.
Get in touch to find out how we can help your business with the new rules.
Keen to know more the EU E-Commerce VAT package and One Stop Shop and impact on your business? Download our recent webinar A Practical Deep Dive into the New EU E-Commerce VAT Rules.
To help businesses understand the impact of Brexit, we’ve cover the essential considerations for supply chain planning in this blog.
The treatment of goods moving between Great Britain and the EU will change significantly from 1 January 2021. Exports and imports will apply to GB-EU trade, replacing the concept of dispatches and acquisitions which applies at present. Though zero rating for exports exist if relevant conditions are met, crucially, import VAT and potentially customs duty liability applies to imports. Some Member States allow for accounting import VAT on VAT returns to mitigate this. For postponed accounting applied to B2B transactions, its essential to determine who will act as the importer of record.
For B2C sales, the distance selling regime will no longer apply to UK businesses shipping goods from GB. There is still a requirement for VAT registrations wif the business remains the importer of record. It will become necessary in any Member State without threshold. If the customer acts as importer of record in their own country then VAT registration won’t be necessary, but there could be additional commercial implications to consider in this scenario, as well as an impact on sales.
When it comes to the treatment of services, changes are unlikely. It appears that the UK will continue to apply VAT place of supply rules in line with the VAT Directive, in part to avoid instances of double or no taxation. However, businesses should consider the liability for registration in the EU and the UK on an ongoing basis, and the UK Mini One Stop Shop (MOSS) for supplies of Telecommunications, Broadcasting and Electronic Services (TBES) will no longer be available. Consequently, businesses require a MOSS registration for another Member State.
If new EU registrations are required, fiscal representation will be necessary in many countries. Fiscal Representatives are often jointly liable for the VAT. In addition, this set-up requires further compliance measures, including guarantees.
Businesses engaging in GB-EU trade of goods must review their supply chain and be fully aware of the implications of Brexit related changes in the New Year. Many businesses may find that it’s possible to make changes to their supply chains to mitigate any negative impacts by changing contractual relationships and reconsidering the flow of goods. It is essential to do these reviews, but must be done now for full effectiveness.
Keen to know how Brexit will impact your VAT compliance obligations? Download our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
Recently, we outlined the need for speed in understanding fiscal representation obligations. Post-Brexit, there are many ramifications for businesses operating cross-border. Among them the requirement to appoint a fiscal representative to register for VAT purposes .
As outlined in our previous piece, there is a limit on tax authorities’ capacity to authorise new fiscal representation applications.
Whether your fiscal representation for VAT post-Brexit planning is in full swing or just beginning; there are considerations with regards VAT registrations, reporting and recovery to be aware of.
In most EU nations, the act of securing fiscal representation doesn’t affect changes to a company’s VAT number. However, tax authorities will require up to date and comprehensive information for the fiscal representation process and may require resubmission of information already provided for the original VAT registration application.
But what is likely to undergo significant change is the nature of transactions taking place post-Brexit. While in principle, businesses report transactions in the same way as before, the transactions carried out could change because of Brexit. So, any fiscal representatives appointed will need an in depth understanding of a business’ accounting processes and procedures.
There is no change to the requirement to file additional declarations by the appointment of a fiscal representative. However, as noted above, transactions may change post-Brexit, and these changes will impact on the requirement for additional declarations. Businesses will need to fully review and contingency plan for this potential impact, considering their supply chains and any UK – EU transactions, in addition to potential reporting requirements.
A question on the top of the agenda for many is how VAT registrations will be affected by Brexit. Much depends on the business in question – not all UK businesses will have a VAT registration requirement in the EU Member States post-Brexit. Those who are not required to register may find that VAT in the EU is incurred, and thus must be recovered to reduce costs.
This is where things get more complex. To recover VAT in some countries where there is not requirement to be VAT registered, fiscal representation is required. The process for appointing fiscal reps and the documentation needed varies nation to nation. But broadly speaking, recovery will be under the 13th Directive. Aside from the 13th Directive’s lengthy paper based systems, the issue here is likely to be reciprocity. The principle of reciprocity means that a Member State can deny recovery of VAT if the country of the claimant doesn’t allow recovery by businesses from the Member State where the VAT is incurred. Each Member State applies reciprocity in different ways which adds to the complexity. We’re in uncharted territory here, as so far 13th Directive claims haven’t been made by UK companies. It’s essential that companies operating in EU nations review local VAT positions before incurring significant amounts of VAT.
In conclusion, fiscal representatives are likely to be an ongoing feature of cross border EU-UK trade. Though fiscal representatives themselves are unlikely to mean that VAT registration and reporting change, Brexit itself may alter transactions and their reporting requirements. Where businesses should invest time and effort is in considering recovery in the nations that they operate in. Significant changes to how VAT recovery occurs may take place.
Keen to know how Brexit will impact your VAT compliance obligations? Download our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
Update: 28 March 2023 by Russell Hughes
The UK government has agreed with the EU on major changes to the Northern Ireland protocol, referred to as the ‘Windsor Framework’.
The protocol is the part of the Brexit deal which sets Northern Ireland’s trade rules and keeps it inside the EU’s single market for goods. While it keeps the Irish land border open, the protocol means products arriving in Northern Ireland from the rest of the UK are subject to VAT and customs procedures.
From a VAT and customs point of view, the significant change will be the introduction of green and red lanes for goods coming into Northern Ireland from Great Britain.
British goods staying in Northern Ireland will use the green lane at Northern Ireland ports, facing minimal paperwork and no routine physical checks. Whereas goods due to travel into Ireland will use the red lane, facing customs processes and other checksat Northern Ireland ports.
A business must be registered as a trusted trader under the new United Kingdom Internal Market Scheme (UKIMS) to use the green lane.
Some large businesses that are members of existing schemes, such as supermarkets, will automatically be transferred to the UKIMS. Businesses with no premises in Northern Ireland will also qualify and be able to register for the scheme.
EU Member States approved critical parts of the Windsor Framework at a meeting on 22 March 2023, whilst this received parliamentary backing in the UK House of Commons on 23 March 2023. However, no date has yet been given on when this would come into effect – should both sides vote it in.
With VAT changes seemingly on the horizon, it’s important for businesses to be prepared. Speak to our expert team for assistance.
Update: 25 November 2020 by Russell Hughes
HMRC has published a policy paper that outlines the VAT accounting process for goods moving between Great Britain (GB) and Northern Ireland (NI) from 1 January 2021.
As from 1 January 2021, the Northern Ireland protocol will come into force. This means that NI will remain in the part of the single market and customs union. Post-Brexit, Northern Ireland maintains alignment with the VAT accounting rules for goods coming from the EU. At the same time, NI will also remain part of the UK’s VAT system, which means there will be no requirement for businesses in GB to have to register for VAT separately in NI.
VAT will continue to be accounted as it is currently on goods sold between GB and NI. This means that the seller of the goods will continue to charge its customers UK VAT and account for this in the relevant boxes on its UK VAT return.
The buyer of UK goods may continue to recover the input VAT charged in accordance with normal rules and report this in the relevant boxes of the UK VAT return.
However, there are a small number of exceptions to this where goods are:
Where the movement of goods falls within one of these exceptions, the customer or importer will account for the VAT on their UK VAT return.
When a UK VAT registered business transfers its own goods from GB into NI, VAT will be due. This is because there is an import of the goods into NI. The business will need to account for output VAT on the movement of goods on its UK VAT return. Whilst at the same time, and providing they are used for making taxable sales, also reclaim the input VAT. This will be subject to the normal rules on VAT recovery.
If the business uses the goods for exempt activities, partial exemption considerations will have to be taken into account. This could create double taxation as there is a possibility that there will be irrecoverable input VAT incurred again on the same goods. To avoid affected businesses can reattribute the originally incurred VAT to allow full recovery as part of the annual adjustment. HMRC will introduce new rules to avoid this being used for avoidance purposes.
For goods moving from NI to GB, the business will not be required to account for VAT on this movement.
VAT groups will need to deal with the movement of goods from GB to NI in the same way. They will also have to account for VAT on the transfer of goods that are physically in NI between VAT group members where neither group member has a fixed establishment in NI, or only one of them does.
Whilst it may not be possible for business established in GB to use EU simplifications such as triangulation, it may be possible for NI businesses to still use such simplifications or where the intermediary is identified as moving goods in, from, or to, NI in the course of its business.
Goods that are moved from GB to NI will not be eligible to be sold within a margin scheme. This is due to VAT having to be accounted for on the movement of goods to NI. However, goods moved from NI to GB will still be eligible to be sold under the margin scheme rules in GB.
Taxpayers continue to apply UK VAT on goods sold on board ferries between GB and NI. The seller accounts for this on their UK VAT return.
Where goods are sold on journeys that visit GB and NI as part of a voyage to third countries, the supply tax treatment is taking place outside the UK. So they are outside the scope of UK VAT.
Where goods are sold on journeys between NI and an EU member state, the current rules will apply. The tax applies at the place of departure.
For businesses that have supply chains involving NI, we would recommend these are urgently reviewed in light of the above changes. Our VAT experts are on hand to help should you wish to discuss this further. Contact us now.
Find out why it makes sense to invest in tech and automation to streamline tax processes and alleviate the burdens finance teams face.
The shift towards digitisation necessitates a radical adaption and shift in existing tech for industries across the board. As this occurs, tensions and anxieties rise around automation and job losses. With Oxford Economics predicting that 12.5 million manufacturing jobs will be automated in China by 2030, a partially automated workforce is indeed on the horizon.
But human expertise and technology can go hand in hand, with tech supporting teams and boosting productivity tenfold. As a result, for businesses, the only way to thrive in an increasingly digital world is to invest in the right technology.
For organisations operating globally, this is of particular importance as an extensive knowledge of governmental financial legislation in many countries is needed. Financial frameworks are complex to navigate and are constantly changing. Real-time VAT reporting is increasingly prevalent worldwide, with continuous transaction controls (CTCs) tightly constricting many different jurisdictions. Without automation, the hours required to manually keep pace with new rules would far exceed realistic human capacity.
For global companies, manually submitting the paperwork for audits and reports is neither sustainable nor sensible. But an additional problem for those operating in multiple jurisdictions is how to keep pace with ever changing rules and government regulations required for business transactions.
Global governments are reviewing how they measure and collect tax returns. The aim is to improve economic standards in their countries. Digitising return processes gives way for a much more forensic and accurate view of a nation’s economic health. So it’s unsurprising that automated invoicing and reporting has pushed its way to the top of the agenda in recent years.
How the approach is taken to upgrading many transactions and interactions is contingent on specific country viewpoints – certain jurisdictions enforce varying levels of CTCs, real-time invoicing, archiving and reporting of trade documentation. Therefore those operating internationally will feel the additional pressure to accurately track and comply with multiple and complex laws with threatening hefty non-compliance fines. Trading and operating within the law now requires intelligent technology and infrastructure.
Approaches across the globe differ; Latin America pioneered mandatory B2B clearance of e-invoices, and Brazil requires full clearance through a government platform. In Europe, the EU-VAT directive prohibits countries from introducing full e-invoicing – though Italy bucked this trend in 2019, following a lengthy derogation process. As economies shift to a data-driven business model, the move towards a digital tax regime is inevitable.
The VAT gap continues to confound governments across the globe. Therefore to combat it, many nations have created their own systems. In turn, this makes a patchwork of mechanisms unable to communicate with each other. To add to this, the slow adoption of e-invoices in many countries has caused a completely fractured picture – VAT information is still being reported periodically in many countries, with each jurisdiction setting its own standard. We’re a long way from consistency in global digitisation.
As more countries develop their own specific take on digitising invoicing, things look increasingly complex. New regulatory legislation continues to surface and keeping track can cause headaches and accidental noncompliance. Global firms must maintain a keen eye on developments as they happen in all the countries where they operate and its essential they apply systems which can track and update new legislation as it happens.
But tech also needs to give an accurate reflection of an entire business’ finances. It needs to link together all the different systems to accurately report tax. This is why flexible APIs are the first order of priority. Programmes with sophisticated APIs enable tax systems to ‘plug in’ to a business and gather vital information. In turn allowing firms to showcase the necessary data, display accurate results and avoid government penalties. It’s essential that technology can integrate with a number of billing systems, ERPs, and procure-to-pay platforms when approaching sensitive government interactions. The volumes of data created and handled are enormous, and increasingly out of the realms of human possibility.
Likewise, tech can assist in formatting information as per the requests of each country, which is essential for digital reporting. Technology exists to monitor and adjust invoice formats. For example, to suit the country a business is operating in and avoid non-compliance penalties. With time usually of the essence and in short supply, tools that automate admin and free up time for strategic elements of business finance pay for themselves in dividends. Effectively, as machines are increasingly ingrained in operations, manual analytics become more challenging. Both governments and businesses are leaning on automation and advanced technology to ease the resulting administrative burdens.
A truly digital future is in the grasp of many economies, but it comes at a price. To capitalise on the rapid wave of digital transformation, businesses must arm themselves with technology. It’s time to manage the increasing realm of complex and data-driven regulations. It makes sense to invest in tech and automation to handle labour-intensive analysis and research, streamline processes, and alleviate the burdens faced by finance teams. That is without the need for costly expert staff or outsourced support. On the verge of a fully digital way of working, manually submitting the paperwork for audits and reports is no longer practical.
It is important to carefully select technology to synchronise and communicate vital information across a business’ IT infrastructure. In the current recession driven context, the pressure on finance teams is intense. The pressure to perform at their best, safeguard against any financial leaks and strictly monitor expenses and outgoings. In the face of adversity, tech can guide and support us – and could become business critical.
Investing in automation and tech doesn’t have to cost finance jobs. It can instead go hand in hand with human expertise. It can manage arduous and complex tasks. While also freeing up time and energy so businesses can concentrate on what they do best.
Find out how Sovos can help you central, standardize and automate your VAT and fiscal reporting obligations.
Our Brexit and VAT series aims to offer the vital information and planning tips businesses operating cross border need. This week, we’re addressing fiscal representation in the EU. As the UK is now a third country from a VAT perspective, there are various urgent steps businesses must take.
Fiscal representatives are effectively an insurance policy for tax authorities, for whom they protect the ability to collect VAT. Member States in the EU have different positions on fiscal representation. Some require non-EU businesses to make a local appointment if the business requires a VAT registration.
Fiscal representatives are local businesses acting on behalf of non-EU companies. They often assume joint and several liability for VAT. Businesses who perform this role must meet a series of measures set out by the Member State in question. They often must be authorized to act by the relevant tax authority.
There are two common situations in which fiscal representatives are needed. The first is where a non-EU business registers in a Member State where fiscal representation is required. Fiscal representation is imposed in different ways, and at the Member State’s discretion – so in some countries it’s mandatory for all non-resident businesses liable to register, whilst in others it depends on the taxpayer’s activity. Equally, some tax authorities don’t require it, whilst others make it optional.
The second common scenario for fiscal representation is where the appointment of a fiscal representative offers a business access to a beneficial VAT regime, as is the case in the Netherlands in respect of the postponement of import VAT.
Post-Brexit, the UK will become a third country for VAT purposes. Most EU nations require fiscal representation for non-EU businesses – with some notable exceptions like Germany – so all businesses that choose or must remain registered in EU nations after 31 December must determine the position of the countries in which they operate.
As many companies restructure supply chains to mitigate the consequences of Brexit, situations arise where they require VAT registrations for the first time. If the country which requires registrations demands fiscal representation, then businesses must look to appoint a local fiscal representative.
UK businesses are in a particular and complex situation. Tax authorities are struggling under the weight of mass applications for fiscal representatives, as significant need has been generated in a relatively short time. As a result, some Member States are issuing specific guidance to UK companies, and others may follow suit. France, for example, has recently clarified that UK companies don’t need to appoint a fiscal representative. Though full details and guidance are yet to arrive, this should be cause for a sigh of collective relief for all UK businesses registered for VAT in France. But beware differing positions – Belgium previously advised all UK businesses who hold non-resident VAT registrations that they require fiscal representation before the end of 2020. They relaxed this position, with the authorities offering an extension until June 2021. The coming weeks may see other Member States taking similar approaches.
Whatever individual Member States’ positions, there are time considerations to be aware of. The amount of risk that fiscal representatives take on for a company is significant. So the process for securing fiscal representation is often lengthy and can involve financial guarantees.
Fiscal representation is here to stay – so planning now is fundamental. Regardless of Brexit, the process for establishing EU fiscal representation for VAT is time consuming. As a result, businesses must act fast to establish the necessary support needed in the countries where there is a requirement to register.
Essential steps are an urgent and ongoing review of different tax authority positions, and careful planning for the associated administrative and financial costs.
Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?
UK Border Controls Post-Brexit – What you Need to Know About Importing Goods
UK Postponed Import Accounting for VAT
Post-Brexit: Postponed and Deferred Import VAT Accounting in the EU
Keen to know how Brexit will impact your VAT compliance obligations? Register for our upcoming webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
As discussed in three key reasons to appoint a VAT managed service provider, the VAT compliance demands from tax authorities around the world continue to increase. They are only going to become more onerous to boost economic efficiency, combat fraud and reduce VAT gaps. The demands for more granular tax reporting are increasing for this to be in real-time. This includes Spain, Hungary, Italy, Turkey and Mexico. These growing demands are adding to the many other challenges faced by multinational companies today. This is why more companies are looking to managed service providers (MSPs). MSPs can ease the pain points of today’s VAT compliance obligations. They make sure they’re covered for fast approaching mandates looming on the horizon.
But how do you choose the right VAT compliance MSP? With so many providers offering a range of different services, making the right choice can be daunting. Do you choose localised individual solutions or opt for a central approach? Here are seven key areas you’ll want to evaluate:
You’ll want to take a strategic view of your IT environment and map tech investments to business goals. Using an VAT compliance MSP allows you to leverage their investment in software and in the ongoing training of their staff. They’ll have been doing this for many years for many clients. It’s what they do. It’ll also allow you to automate and streamline many of your manual processes which may also be a core business objective. Make sure the software is compatible and accessible to suit your needs in each of the locations where you trade not only today but in the regions you’re looking to enter in the future.
The move to digitise tax reporting all over the world has now led to IT security considerations being important when choosing any provider. Security can therefore relate not only to the transmission of data to a provider, but also in making sure it’s safely and securely stored during, and after transmission to revenue authorities. Here a centralised provider can provide some key benefits. Portals can be used to accept data from clients, and also all information can be securely stored on a consolidated cloud, with data centres in different regions as needed to comply with data retention policies globally.
Building and maintaining a team of specialists can be time consuming and costly. With the right VAT compliance MSP, you’ll have access to their team and can benefit from their specialist knowledge and experience. Let them ease the burden. Know they’ve got their finger on the pulse of regulatory changes so you don’t have to. You can then focus on what your company does best knowing that your VAT compliance is in safe hands.
You’ll want to choose a provider that can adapt as your business needs change. You may want the flexibility to outsource only part of your tax compliance obligations depending on inhouse resources, budgets, expertise etc but have the freedom to assess and change this at any time. A tailored approach that can be altered over time will ensure your compliance needs are covered today as well as in the future.
Hand in hand with flexibility, you’ll want a provider that’s able to grow with you. They’ll already have experience and in-depth knowledge of the markets you need help with today, but make sure they can cover other regions you may choose to enter in the future. Choosing local point solution providers for different markets can cause headaches down the line.
Your MSP is there to support and service your account and should feel like an extension of your own team. You’ll want a collaborative approach and partnership-feel. Ensure you get the most out of this relationship. Also be updated on new changes in the regulatory landscape well before they’re finalised. Find out about who your account team will be and if they’re in single or multiple locations in addition to if there are any language barriers.
Even though you’ve outsourced all or part of your VAT compliance, you’ll still want to keep track of it. To that end, check what access you’ll have to the software and who in your company will have full or partial access. Also ask if logins are restricted. A secure customer portal and centralized dashboard helps keep track, at a glance, of each stage of your tax compliance. This includes traffic lights to flag priorities and approaching deadlines.
Choosing to appoint a MSP for your VAT compliance will allow you to focus on what you do best. Take care to ensure your chosen provider not only suits your needs today but also has reach and experience in the regions you’ll enter in the future. Taking time to choose the right MSP will pay dividends in the future. The right partner will be at your side for the long haul.
To learn more about the benefits a managed service provider can offer to ease your VAT compliance burden, watch our recent webinar on demand VAT Reporting: Managing Change.
Businesses that trade cross border must turn their attention to the treatment of goods post-Brexit. Recently, we discussed postponed import VAT accounting in the UK. This week, we’re turning our attention to postponed import VAT accounting in the EU.
In theory, when goods enter the EU, import VAT is immediately due to the customs authorities at the relevant border. In practice, the EU VAT Directive gives Member States the ability to determine the conditions under which goods enter their territories. This is in addition to the ability to set detailed rules for payment of VAT in respect of goods imported. This means Member States can implement mechanisms for postponed accounting via the VAT return, or deferred payment schemes, or a combination of both.
Postponed accounting via the VAT return accounts and pays for import VAT due in the taxpayer’s periodic VAT return. If import VAT is deductible, it is recoverable on the same return. This creates the benefit of neutral cashflow impact as a result. Effectively, this accounts for VAT in a similar way as acquisition tax, in that there is no physical payment of VAT to the revenue authority.
Member States are able to determine the specifics of their own deferment scheme, which may apply to every importer or be limited to certain cases.
Import VAT can create significant cashflow issues. To mitigate this it’s essential to be aware of available reliefs. Therefore post-Brexit, make the necessary application for deferred or postponed VAT accounting in the country of import.
Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?
UK Border Controls Post-Brexit – What you Need to Know About Importing Goods
UK Postponed Import Accounting for VAT
Keen to know how Brexit will impact your VAT compliance obligations? Then watch our on-demand webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
On 30 September 2020, the European Commission published its “Explanatory Notes on VAT E-Commerce Rules,” to provide practical and informal guidance on the upcoming July 2021 e-commerce regulations. This “EU VAT e-commerce package” was initially adopted (under Directive 2017/2455 and Directive 2019/1995) and set to be implemented on 1 January 2021 but has since been delayed until 1 July 2021.
The Explanatory Notes set out to explain the practical aspects of the upcoming changes to place of supply rules and reporting obligations for certain online supplies in Europe: specifically, B2C distance sales of goods imported from third countries, intra-community distance sales of goods, and cross border supplies of services. The explanatory notes provide further guidance on the application of the new One Stop Shop (“OSS”) and import One Stop Shop (“iOSS”) regimes, including scenarios where Electronic Interfaces (such as marketplaces) are deemed liable for the collection and remittance of VAT relating to underlying suppliers transacting on their platforms.
The OSS scheme:
For EU-EU goods deliveries, suppliers are no longer compelled to register and file VAT returns in every EU Member States where distance selling thresholds are exceeded. Instead, a new EU-wide threshold of €10,000 applies, after which VAT must be collected and remitted based on the destination of the goods. Under the OSS, suppliers (or deemed suppliers) may elect to register once in their Member State of identification and file a single, simplified OSS return in respect of all their EU distance sales. A similar scheme known as the Mini One Stop Shop (“MOSS”) already exists for electronically supplied services by EU and non-EU suppliers. Its scope will be broadened so that it includes all B2C services where the VAT is due in a country where the supplier is not established.
B2C suppliers who choose to participate in OSS must use it for all supplies that fall under the scheme. This shouldn’t be seen as a drawback, however, because the OSS scheme is designed to reduce admin burdens wherever it’s used. For example, in addition to simplifying registration requirements, OSS imposes no obligation to issue a VAT invoice for B2C supplies. (An EU Member State may opt to impose invoice requirements relating to service invoices only, but not for goods).
The iOSS scheme:
Distance sales of goods imported from third countries, with an intrinsic value no greater than €150, may be subject to the new iOSS simplification regime, designed to facilitate a smooth and simple collection of VAT on B2C imports from outside the EU. With the concurrent repeal of the €22 low-value consignment relief (and the absence of an alternate threshold or de-minimus) this is an attractive option for suppliers looking to reduce administrative and compliance burden. Under this mechanism, a supplier (or deemed supplier) may elect to register – via an intermediary for non-EU suppliers – for iOSS in a single Member State, and collect VAT in the respective EU country of destination, and remit monthly iOSS VAT returns in support.
The explanatory notes to the new e-commerce rules emphasize the overriding goal of making VAT collection more effective, reducing VAT fraud, and simplifying VAT administration. Nevertheless, the new rules are massive in scope, and businesses must be careful to ensure that their internal systems are properly configured prior to the changes taking effect.
To learn more about the new EU e-commerce rules, listen to our on-demand webinar A Practical Deep Dive into the New EU E-Commerce VAT Rules
In our Brexit and VAT series, we delve into some of the most important issues of the day to bring you clarity and advice.
Last week we looked at goods, services, and VAT. This week, we address UK border controls post-Brexit and importing goods.
Currently, the concept of dispatches and acquisitions applies to goods that move between Great Britain and the EU. After 31 December, the movement of goods will be subject to export and import treatment. When it comes to exports, zero rating can apply if the relevant conditions are met. However, imports are liable to import VAT and potentially customs duty.
The path to post-Brexit clarity on imports has been long and winding. In February 2020, the UK Government introduced a range of measures to ease the potential impact of a hard Brexit. The introduction of Transitional Simplified Procedures (TSP) for customs entry into the UK intended to reduce burdens on business. The UK Government also announced postponed accounting for import VAT. This allows for the tax to be accounted for at the time of the return filing rather than at import.
After signing the transition deal, the Government abandoned these measures. Controversy around the removal of postponed accounting for import VAT and the catastrophic progress of the COVID-19 pandemic are likely to have affected the UK Government’s thinking. The Spring Budget in March reintroduced postponed accounting. Then in June, Downing Street introduced updated guidance and a phased implementation in three stages for border controls. This approach serves to mitigate, to some degree, the changes brought about by the pandemic and speaks to the capacity of the UK Government itself in the coming months.
As of stage one, controlled goods like alcohol and tobacco will be subject to checks. In the event there is no preferential agreement with the exporting country, for example a Free Trade Agreement with the EU, the new UK Global Tariff lists (UKGT) will apply. The UKGT is a worst-case scenario document, showing the tariffs that will apply to imported goods in the absence of a Free Trade Agreement. The sharp eyed among us will note the changes between the current UKGT and the 2019 temporary list. In the latter, 88% of goods were tariff free, whilst the new UKGT reduces the level to 60%.
In addition to the checks, controls and costs of imports, there are a series of changes to mechanisms for importing goods that businesses must consider post-Brexit. Customs Freight Simplified Procedures (CFSP); the existing electronic customs declarations system; and Entry In Declarants Records (EIDR) will be available without application until 30 June 2021. This is as long as businesses meet the relevant conditions. After this, they’ll require approval.
Postponed VAT Accounting, introduced by HRMC on 1 January 2021, will provide some respite for businesses. It will apply to both imports from the EU and those from outside of it, and crucially, it won’t require an application. However, it doesn’t free businesses from the payment of duties, which will be applicable in line with the UKGT list.
Hopes were high for positive change on Intrastat, the mechanism for EU-UK trade statistics. Renowned for its headache causing qualities and reliance on manual data manipulation, an end to Intrastat was expected by many to be a Brexit bonus. When publishing the Border Operating Model in July 2020, HMRC confirmed that Intrastat arrivals declarations will continue to be required from those businesses that have a liability to submit in 2020. There will be no requirement for dispatches to be submitted. It should be noted that the position for businesses in Northern Ireland will be different. This is due to the Northern Ireland protocol.
Understanding import obligations and preparing well in advance of each stage of the phased implementation for border controls post-Brexit is essential.
Keen to know how Brexit will impact your VAT compliance obligations? Watch our webinar on demand Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
The sands of transition period time are draining away. As we edge ever closer to the final Brexit deadline, there are a raft of VAT related considerations for businesses to attend to.
Though uncertainty reigns about the shape of the trading relationship, most of the Brexit scenarios up for debate would render the UK a third nation for VAT purposes. This means there are VAT implications to Brexit which will be substantial and, in many cases, immediate.
Our Brexit and VAT articles in the coming weeks, will address some of the key areas of concern for business providing information, advice and actionable insights. Here, we tackle goods, services and VAT recovery post Brexit.
On 1 January 2021, the treatment of goods moving between Great Britain and the EU will change. At present, the concept of dispatches and acquisitions applies to GB-EU trade. Post 1 January, it will be replaced by exports and imports. Though zero rating for exports exists if the relevant conditions are met, crucially, imports are liable to import VAT and potentially customs duty.
To ease the impact of this, Member States including France, Belgium and the Netherlands implement postponed accounting, allowing for import VAT to be accounted for on VAT returns. This maximises cash flow, but may require an application or licence – both of which are conditional, can be revoked, and aren’t automatic like the current mechanism for accounting for acquisition tax. HMRC is implementing postponed import VAT accounting for goods arriving from the EU – this is automatic and will also be available for imports from countries outside the EU.
When it comes to the treatment of services, businesses can breathe a tentative sigh of relief. The UK is expected to maintain the application of VAT place of supply rules in line with the VAT Directive. However, businesses will need to consider the liability to be registered in the EU and the UK on an ongoing basis. With this in mind a word of advice – any business that engages in UK-EU trade of goods should review supply chains and contingency plan for all scenarios in the new year.
Getting VAT back is a primary concern for businesses. The bad news is that it’s likely to become more complex. If a UK company is registered in the EU it can continue to recover VAT via returns, but it may be necessary to appoint a fiscal representative. If a business is neither registered nor liable to register, recovery will be via the 13th Directive, which has many drawbacks. Firstly, it’s a paper-based system with its own unique time limits. Secondly, it may cause issues of reciprocity, potentially preventing UK businesses from making claims in some countries.
EU businesses registered for VAT in the UK can continue to recover input tax via the VAT return. However, if a business is neither registered nor liable to be, recovery will be via a paper-based system. It’s important to note that the UK currently applies the reciprocity principle if a UK business would be denied a claim in the country of the claimant. For EU businesses, this means running the risk that they are denied VAT returns if there is no reciprocity between their country and the UK.
Whatever the individual situation, planning must be a priority. Claims can be made for 2020 under the current mechanisms, but deadlines will be reduced. Claims under new processes must be evaluated to ensure that no recoverable VAT is lost.
As we move into the final phase of the Brexit process, time is of the essence. With the type and likelihood of a deal still unclear, the best steps for any business trading cross border are to proactively plan, review supply chains and consider registration liabilities.
Keen to know how Brexit will impact your VAT compliance obligations? Download our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
With a VAT gap across EU countries estimated at €140 billion in 2018, tax authorities are continuing to take steps to boost revenues, increase efficiency and reduce fraud. As a result, VAT compliance obligations are becoming more demanding. Failure to comply can not only result in significant fines but also reputational damage.
Many multinational companies find successfully navigating VAT compliance a challenge. Even more so when trading cross-border where VAT registration and reporting requirements differ significantly between territories. As demands increase, more companies are realising the benefits from embracing a managed service approach. This is to all or part of their VAT obligations.
From conversations with our customers, we identified three reasons for appointing a managed service provider (MSP) for VAT compliance. They are varied and apart from cost, fall broadly into three categories.
Staffing, training and retaining a team of indirect tax specialists can be expensive and time consuming. Accessing external expertise allows you to benefit from wider and more detailed knowledge and experience in complying with local tax authority regulations. Understanding local rules requires fluency in both the local language and in understanding tax law plus its implications to interpret the rules accurately. This can be a huge benefit in helping to simplify the complexities of domestic obligations. It can apply to initial VAT registrations, ongoing filings, as well as correspondence with revenue authorities whenever reviews and/or audits occur. Why struggle with the headache of resourcing and keeping up with the changing compliance landscape when there are specialist providers to ease this pain?
While the future of VAT reporting is increasingly tech-enabled, building and maintaining your own in-house software is onerous and for many companies is the key driver to getting external help with their VAT compliance obligations. By using a technology enabled MSP, you’ll have access to their VAT compliance software. It will help you stay ahead of changing VAT rates and requirements as they happen wherever you do business. Using a MSP that is technology enabled allows them to take care of any real-time/continuous reporting requirements. This includes Spain’s SII. This should also be far more cost effective than doing this in-house. Automating at a regular cadence prevents being caught out by missed filings that need to happen all too frequently to be done cost effectively by a person.
Keeping up with the ever changing requirements of VAT rates, new mandates and reporting requirements can be daunting. The VAT compliance landscape will continue to shift as more tax authorities move to enforce continuous transaction controls. The aim is to boost economic efficiency and close VAT gaps. The right VAT compliance MSP will ensure your business is able to meet your current VAT compliance requirements. They should also have experience in markets you may want to enter in the future. They’ll be able to guide you through VAT registrations and filing requirements as well as interpreting local complexities where needed. A valued VAT compliance MSP will also ease the burden of audits. They’ll help you whenever an audit occurs but ultimately with robust processes in place, they should also be able to prevent disputes occurring.
VAT legislation is complex and constantly changing. Businesses need the support of both managed services and technology to meet their VAT compliance obligations. In addition to continue trading with confidence. Appointing an experienced global MSP blends human expertise and technology. This can provide the perfect balance to face the changing VAT landscape head on.
To learn more about the benefits a managed service provider can offer to ease your VAT compliance burden, watch our recent webinar on demand VAT Reporting: Managing Change.
Since 31 January 2020, the UK is officially no longer part of the EU but is considered a third country to the union although EU legislation will still apply to the country until the end of 2020. Although Northern Ireland is part of the UK, the region will remain under EU VAT legislation when it comes to the supply of goods also after 1 January 2021. The EU Commission has proposed an amendment to the VAT Directive creating a new country code for Northern Ireland to be used in tax identification numbers of Northern Irish companies.
An overall obligation for EU taxpayers to use and perform supplies under an EU-approved tax ID number exists. Thus, applying EU law to supplies performed to/from Northern Ireland demands an EU-compatible VAT identification number. Currently, EU Member States use a prefix country code following the ISO 3166-1 standard that assigns the country code “GB” to the UK and Northern Ireland.
From 1 January 2021, the indiscriminate use of the “GB” prefix in VAT numbers may pose a problem for supplies of goods to/from Northern Ireland. From that date, intra-community supplies and acquisitions of goods to/from Northern Ireland will remain in the scope of the EU VAT law. Consequently, Northern Irish taxpayers must hold a specific EU VAT number to be identified as such under the European rules. Provided that the country code “GB” will be used by the UK and assigned according to British legislation, the EU Commission has proposed a new country code “XI” to be attributed as a prefix of Northern Irish tax ID numbers.
A valid EU tax identification performs many roles, such as ensuring (or facilitating) the correct tax and customs treatment for intra-community supplies. The VIES platform, that runs the EU VAT Information Exchange System, is an example of the importance the EU gives to valid tax ID numbers. To ensure parties to a transaction can check each other’s tax ID numbers and are eligible to exemptions on intra-community supplies, the EU has established the VIES system, which will likely be the first EU mechanism directly affected by the creation of the new Northern Irish country code.
Such a proposal from the EU Commission may impact Member States’ systems. Upon adoption, the new Directive will require Member States to quickly adjust their apparatus to process “XI” invoices from January 2021. Countries operating some degree of continuous transaction controls, such as Italy, Hungary, and Spain, may be expected to update their platforms to comply with the amendment.
If passed, the proposal will impact taxpayers’ accounting and ERP systems which will need to process and recognize the “XI” country code in issued and received invoices as a Northern Irish indicator. Moreover, many systems allow the use of user-assigned country codes in customized transaction flows. User-assigned country codes are ISO codes that are freely assigned by users and used at their discretion, for example flows between supported and non-supported countries within an ERP system. So far, “XI” has been a user-assigned country code. Consequently, the proposal may force many IT departments to change internal policies regulating the use of user-assigned country codes.
Tax departments must also be aware of the tax treatment of “XI” invoices, given that EU VAT law won’t apply to supplies of services performed to/from Northern Ireland, but only to supplies of goods. Consequently, companies must create internal flows to deter the use or validation of the “XI” country code in supplies of services if unaccompanied by a valid “GB” country code.
The Council of the European Union is expected to deliberate about the proposal next on 9 September.
Talk to our tax experts for immediate help or keep up to date with the changing VAT compliance landscape, download Trends: Continuous Global VAT Compliance and follow us on LinkedIn and Twitter to stay ahead of regulatory news and other updates.