Small businesses in the UK may not yet be aware of a number of important changes to the European Union VAT system which took effect from January 1, 2010, states Quentin Pain, Founder of accounting software company, Accountz.
“We are advising businesses that they should be taking action now if they are to avoid errors. The 2010 VAT changes will affect businesses involved in supplying or receiving cross-border services, as well as those reclaiming VAT incurred in another EU country,” stated Quentin. “And in many cases under these new rules businesses will have to report VAT on services on a quarterly basis to HMRC.”
The new rules will mean that:
* the company that has to account for VAT in 'business to business' transactions will generally be the recipient of the service (although there are some exceptions).
* the time when VAT has to be accounted for on imported services will change to when the service is completed. For continuous services, the tax will have to be accounted for at the end of the relevant billing/payment period or otherwise on 31 December each year. Where a payment is received prior to the above dates, the tax is due on the date that it is received.
* businesses supplying services across borders will need to comply with additional reporting requirements in the form of EC Sales Lists. From 1 January 2010, there are also some changes to the EC Sales Lists that are currently required for the supply of goods.
* businesses wishing to reclaim the VAT incurred in another EU country will do so by way of an electronic portal in their own country, rather than by submitting a claim to the relevant overseas tax authority.
"We are expecting the impact of the new rules will affect businesses in a number of ways. Businesses will have to accommodate changes to existing IT systems and procedures. The impact on operating costs also needs to be considered. Applying the wrong VAT treatment could result in increased administrative costs and require the issue of credit notes, refunds of incorrectly charged VAT to customers and voluntary disclosures to HM Revenue and Customs," stated Quentin Pain. “Businesses could potentially face a crippling £15 a day in penalties for late delivery of figures.”
He added: "After a year in which many small businesses struggled to survive as a consequence of the economic downturn, it is clear that this new legislation will increase the regulatory burden at a time when a number of hard-pressed small companies are crying out for support from the government. Companies need to take action now and the fastest route to ensuring compliance is through the use of flexible and intuitive IT solutions."
“According to some press reports the HMRC has said the new rules from the European Commission would help combat fraud. Leniency for late submissions should be shown in the early stages of its implementation,” he continued.
