14 Nov 2019

New VAT Rules for trading with EU

20191114 MHA Monahans new VAT rules

A key priority for HMRC recently has been on preparing businesses for the consequences of a no-deal Brexit.

A side-effect is that some other changes in VAT have either been postponed (for example the domestic reverse charge for building and construction services) or have not received much publicity or guidance.

An example of the latter relates to 4 “quick fixes” on VAT that the EU has introduced, and are due to come into effect on 1stJanuary 2020. Assuming the UK does not leave the EU before 31 Jan 2020, and/or that when it leaves, under an agreed deal, the UK will keep EU VAT law until the end of a transitional period, these changes will affect UK businesses trading with the EU.

The four quick fixes relate to:-

  • call-off stock held in other EU states
  • chain transactions with consecutive supplies of goods among three or more businesses in different EU Member States
  • evidence of shipment for zero-rating intra-EU sales of goods
  • other requirements for zero-rating intra-EU sales of goods

These measures will mean some changes are necessary for businesses’ record keeping and processes.

1. Call-off Stock

In principle, where a business holds stock, destined for the use of a regular customer, in the customer’s country, and allows the customer to “call off” the stock as required, the supplier must be VAT registered in the customer’s EU country. It is, in effect, moving its own goods from one EU member state to another, and making the sale in the customer’s country.

Many member states have some kind of simplification, but the rules vary, and the new rules will introduce a common procedure.

This will mean that if the customer calls off the stock within a year, and all of the specified conditions are met, the sale will be treated as a direct intra-Community supply to the customer at the time the customer calls off the stock. The supplier will not be required to register for VAT in the customer’s Member State. However, both parties must keep a register in a prescribed format.

2. Chain Transactions

Chain transactions involve 3 or more parties and the movement of goods across borders. For example, where A sells to B, B sells to C but the goods move directly from A to C. The new rules will clarify which of the parties can treat their sale as a zero-rated intra-community supply.

3. Evidence of removal from the UK

While HMRC have always required proof, as a condition of zero-rating of exports/dispatches, that the goods have left the UK, requirements in other member states are generally less strict.

The rules will introduce more consistency between member states by introducing a harmonised standard of proof for intra-community supplies.

4. Other requirements for zero-rating intra-EU sales of goods

HMRC have always required the VAT registration number of the EU customer to be listed on the UK Sales invoice as a condition of zero-rating dispatches of goods to customers in another EU territory. This is being mandated in all EU member states.

However, a further condition will be the requirement to correctly report the transaction on an EC sales list. In principle, this could mean that errors on an EC Sales list could lead to both penalties for incorrect submission of the forms, and the loss of zero-rating.

Conclusion

It remains to be seen whether, in the circumstances, HMRC will apply any kind of light touch if businesses aren’t complying fully with the new requirements. However, HMRC have generally been strict on the requirements for zero-rating of overseas shipments in particular and, on this basis, business supplying goods to customers in other EU territories should be considering what changes are necessary to their processes.

For further details on the new rules, please contact Steve on 01225 472800 or send him an email.