Category Archives: Planning

Digitisation of the VAT Retail Export Scheme – Update

By   23 February 2018
0

What is the VAT Retail Export Scheme (VAT RES)?

The VAT RES allows:

  • overseas visitors (generally, persons who live outside the EC) to receive a refund of VAT paid on goods exported to destinations outside the EC
  • retailers to zero-rate goods sold to entitled customers when they have the necessary evidence of export and have refunded the VAT to the customer

Such treatment is subject to a number of conditions:

  • the customer must be entitled to use the scheme
  • the goods must be eligible to be purchased under the scheme*
  • the customer must make the purchase in person and complete the form at the retailer’s premises in full
  • the goods must be exported from the ECby the last day of the third month following that in which the goods were purchased
  • the customer must send the retailer or the refund company evidence of export stamped by Customs on an official version of Form VAT 407, an approved version of Form VAT 407 or an officially approved invoice
  • the retailer or the refund company must not zero-rate the supply until the VAT has been refunded to the customer

Typically, a retailer will charge UK VAT to an overseas visitor until the visitor has returned the appropriate documentation which has been suitably stamped at the port of departure from the UK.

* Certain goods are excluded from VAT RES. These include; motor vehicles for personal export, boats sold to visitors who intend to sail them to a destination outside the EC, goods over £600 in value exported for business purposes, goods exported as freight or unaccompanied baggage, unmounted gemstones, bullion, goods consumed in the UK and goods purchased by mail order including those purchased over the Internet. (This list is not exhaustive).

Full details of VAT RES scheme here https://www.gov.uk/government/publications/vat-notice-704-vat-retail-exports/vat-notice-704-vat-retail-exports

VAT RES is a voluntary scheme and retailers do not have to operate it. Those who do must ensure that all the conditions set out in the above notice are met. In certain areas (such as the West End of London) businesses which offer VAT RES have a commercial/price advantage over those shops which do not.

So what is new?

HMRC has recently (this month) provided an update on their project to digitise the VAT RES system, to improve the efficiency for both retailers and travellers, and also to help reduce fraud. Details here

https://www.att.org.uk/sites/default/files/180213%20VAT%20Retail%20Export%20Scheme.pdf

We are able to advise further on this matter if required.

VAT: Latest from the courts – Hastings Insurance Place Of Supply

By   22 February 2018
0

In the First Tier Tribunal (FTT) case of Hastings Insurance the issue was where was the place of supply (POS) of services?

The POS rules determine under which VAT regime the supply is treated, whether the associated input tax may be recovered and how the services are reported. Consequently, determining the POS for any supply is vitally important because getting it wrong may not only mean that tax is overpaid in one country, but it is not declared in the appropriate country so that penalties and interest are levied. Getting it wrong also means that the input tax position is likely to be incorrect; meaning that VAT can be over or underclaimed.  The rules for the POS of services are notoriously complicated and even subtle differences in a business’ situation can produce a different VAT outcome.

Background

Hastings is an insurance services company operating in the UK.  The appeal relates to whether the appellant was able to recover input tax it incurred in the UK which was attributable to supplies of; broking, underwriting support and claims handling services made to a Gibraltar based insurance underwriter (Advantage) which supplied motor insurance to UK customers through Hastings. In order to obtain credit for the relevant input tax, the supply to Advantage must have a POS outside the EU, eg: the recipient had a place of belonging in Gibraltar and not the UK. HMRC argued that Advantage belonged in the UK so that the input tax could not have been properly recoverable.  Consequently, the issue was where Advantage “belonged” for VAT purposes.

The POS rules set out where a person “belongs”.

A taxable person belongs:

  • where it has a business establishment, or;
  • if different, where it has a fixed establishment, or;
  • if it has both a business establishment and a fixed establishment (or several such establishments), where the establishment is located which is most directly concerned with the supply

Further details on this point are explained here

Contentions

It was not disputed that Advantage had a business establishment in Gibraltar. The question was whether it also had a fixed establishment in the UK and, if so, whether the supplies of services were made to that fixed establishment rather than to its business establishment in Gibraltar. HMRC contended that Advantage had a fixed establishment in the UK which was “more directly concerned with the supply of insurance” such that the POS was the UK. This was on the basis that Advantage had human and technical resources in the UK which were actually used to provide its services to UK customers. Hastings obviously argued to the contrary; that Advantage had no UK fixed establishment and that services were supplied to, and by, Advantage in Gibraltar.

Technical

It may be helpful to look briefly at CJEU case law which considered what an establishment other than a business establishment is. It is: “characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources”, where looking at the location of the recipient of the supply, “to enable it to receive and use the services supplied to it for its own needs” or, where looking at the location of the supplier, “to enable it to provide the services which it supplies”. 

Decision

The FTT concluded that the input tax in dispute is recoverable because it was attributable to supplies made to Advantage on the basis that it belonged outside the EU (as interpreted in accordance with the relevant EU rules and case law). After a long and exhaustive analysis of the facts the summary was;

  • The appellant’s human and technical resources, through which it provided the services to Advantage, did not comprise a fixed establishment of Advantage in the UK, whether for the purposes of determining where Advantage made supplies of insurance or where the appellant made the supplies of its services.
  • Even if, contrary to the FTT’s view, those resources comprised a fixed establishment in the UK, there is no reason to depart from the location of Advantage’s business establishment in Gibraltar as the place of belonging/supply in the circumstances of this case.

Summary

If this case affects you or your clients it will be rewarding to consider the details of the arrangements which are helpfully set out fully in the decision. This was, in my opinion, a borderline case which could have been decided differently quiet easily.  A significant amount of the evidence produced was deemed inadmissible; which is an interesting adjunct to the main issue in itself. Whether HMRC take this matter further remains to be seen.  It is always worthwhile reviewing a business’ POS in depth and we are able to assist with this.

VAT: Timeshare is exempt

By   19 February 2018
0

Latest from the courts

The Fortyseven Park Street Ltd (FPSL) Upper Tribunal case.

Brief technical overview

In general terms the provision of a “timeshare” in the UK is standard rated for VAT. This is because HMRC regard supplies of this type to be similar to hotels, inns, boarding houses and are treated as “serviced flats” (other than those for permanent residential use). The appellant sought to argue that what it provided was not “similar” to a hotel or boarding house.

Background

The issue in the FPSL case was whether “Fractional Interests” (akin to timeshares) in a property amount to an exempt supply of that property. The Fractional Interests entitled FPSL’s clients up to 21 days a year in block of apartments in Mayfair.

The First Tier Tribunal (FTT) determined that here were three main issues:

  • The FTT decided that the supplies of the Fractional Interests fell within the exemption from VAT provided for the leasing or letting of immovable property.
  • However, the FTT further found that the land exemption was excluded because the grant of the Fractional Interests was the provision of accommodation in a similar establishment to an hotel.
  • The therefore FTT dismissed FPSL’s argument that under the principle of fiscal neutrality the supplies of the Fractional Interests should be treated in the same way (exempt) as more traditional timeshare interests.

Decision

The UT decided that the relevant interests provided amounted to an exempt supply of the property. This was on the basis that the judges concluded that the grant of the Fractional Interest was the grant of a right to occupy a residence and to exclude others from enjoying such a right, and was thus within the concept of the “letting of immovable property”.  It was also found that the supply was a passive activity and not outside the land exemption by reason of FPSL having added significant value to the service despite providing; certain additional facilities, services (eg; concierge) and benefits to clients – this was not, it was decided, a situation where the appellant had actively exploited the asset to add value to the supply (which may have made it taxable). The UT also ruled that as the concierge was provided by a third party, it could not be combined to form a single supply made by FPSL thus emphasising the fact that this was a more passive activity.

It was noted that there was a distinction in this case from supplies of boutique hotels (which are standard rated hotel accommodation) because residents were contracting for the supply of a long-term right to occupy an apartment and not a series of short-term stays and that the high amount paid for the Fractional Interest brought with it certain financial obligations which are not found in the hotel industry.

Commentary

This is an interesting case and the decision somewhat surprising.  There is a subtle distinction between what was provided here and serviced flats or hotel accommodation, but the UT found it sufficient to apply exempt treatment. If you, or your clients may be affected by this decision, please contact us.

VAT Error Disclosure under £10,000 – Draft Letter To HMRC

By   12 February 2018
0

Error Correction – belt and braces

If an error is discovered on a past VAT return it is only usually necessary to report it to HMRC (on form VAT652) if it is £10,000 (net of all errors) or more of VAT.

However, because of the current penalty regime it is important to ensure that any adjustment qualifies as an unprompted disclosure. Consequently, we recommend that a letter similar to that below is sent to HMRC in cases where errors below £10,000 have been adjusted on a current return.

“RE: Letter of disclosure; error on return for period XXXX

 We disclose, (on behalf of our above named client), that the VAT return for the period XX/XX contained an inaccuracy.

 Reason, eg; Due to a processing error, three sales invoicing totalling……

 This resulted in the net VAT due for the period being understated by £XX

 As the error is within the limits for correction on the next VAT return, this error has been corrected on the return for the period in which the error was discovered, namely the period XX/XX.  No further action to correct the error is therefore necessary.

 Please treat this letter as an unprompted disclosure of an inaccuracy.  Alternatively, please advise me of any further details that you may require in order that that this letter may be treated as such.”

It is accepted that this course of action may prompt enquiries, but it is our view that that is preferable to having a potential ticking time bomb.

Please contact us should you have any queries on error disclosure.

VAT: Doctors and healthcare professionals

By   29 January 2018
0

VAT and Doctors

I have noticed that I am receiving more and more queries in this area and HMRC does appear to be taking an increased interest in healthcare entities. This is hardly surprising as it can be complex and there are some big numbers involved.

(This article refers to doctors, but applies equally to most healthcare professional entities.)

The majority of the services provided by doctors’ practices are VAT free. Good news one would think; no need to charge VAT and no need to deal with VAT records, returns and inspections.

However, there is one often repeated question from practices; “How can we reclaim the VAT we are charged?”

The first point to make is that if a practice only makes exempt supplies (of medical services) it is not permitted to register for VAT and consequently cannot recover any input tax. Therefore we must look at the types of supplies that a practice may make that are taxable (at the standard or zero rate). If any of these supplies are made it is possible to VAT register regardless of the value of them. Of course, if taxable supplies are made, the value of which exceeds the current turnover limit of £85,000 in a rolling 12-month period, registration is mandatory.

Examples of services and goods which may be taxable are:

  • Drugs, medicines or appliances that are dispensed by doctors to patients for self-administration
  • Dispensing drugs against an NHS prescription (zero-rated)
  • Drugs dispensed against private prescriptions (standard-rated)
  • Medico legal services that are predominately legal rather than medical – for example negotiating on behalf of a client or appearing in court in the capacity of an advocate
  • Clinical trials or market research services for drug companies that do not involve the care or assessment of a patient
  • Paternity testing
  • Certain rental of rooms/spaces
  • Car parking
  • Signing passport applications
  • Providing professional witness evidence
  • Any services which are not in respect of; the protection, maintenance or restoration of health of a patient.

So what does VAT registration mean?

Once you join the “VAT Club” you will be required to file a VAT return on a monthly of quarterly basis. You may have to issue certain documentation to patients/organisations to whom you make VATable supplies. You may need to charge VAT at 20% on some services. You will be able to reclaim VAT charged to you on purchases and other expenditure subject to partial exemption rules (see below). You will have to keep records in a certain way and your accounting system needs to be able to process specific information.

Because doctors usually provide services which attract varying VAT treatment, a practice will be required to attribute VAT incurred on expenditure (input tax) to each of these categories. Generally speaking, only VAT incurred in respect of zero-rated and standard-rated services may be recovered. In addition, there will always be input tax which is not attributable to any specific service and is “overhead” eg; property costs, professional fees, telephones etc. There is a set way in which the recoverable portion of this VAT is calculated. VAT registered entities which make both taxable and exempt supplies are deemed “partly exempt” and must carry out calculations on every VAT return.

Partial Exemption

Once the calculations described above have been carried out, the resultant amount of input tax which relates to exempt supplies is compared to the de-minimis limits (broadly; £625 per month VAT and not more than 50% of all input tax). If the figure is below these limits, all VAT incurred is recoverable regardless of what activities the practice is involved in.

VAT registration in summary

Benefits

  • Recovery of input tax; the cost of which is not claimable in any other way
  • Potentially, recovery of VAT on items such as property, refurbishment and other expenditure that would have been unavailable prior to VAT registration
  • Only a small amount of VAT is likely to be chargeable by a practice
  • May provide opportunities for pre-registration VAT claims

Drawbacks

  • Increased administration, paperwork and staff time
  • Exposure to VAT penalties and interest
  • May require VAT to be added to some services provided which were hitherto VAT free
  • Likely that only an element of input tax is recoverable as a result of partial exemption
  • Uncertainty on the VAT position of certain services due to current EU cases
  • Potential increased costs to the practice in respect of professional fees.

Please contact us if any of the above affects you or your clients.

VAT – What records must be kept by a business?

By   9 January 2018
0

Requirements for VAT records by taxable persons

I thought that it may be useful to round-up all the record-keeping requirements in one place and focus on what HMRC want to see. It is a good time to review record-keeping requirements as Making Tax Digital (MTD) is on the horizon. More on MTD in a later article.

General requirements

Every taxable person must keep such records as HMRC may require. Specifically, every taxable person must, for the purposes of accounting for VAT, keep the following records:

  • business and accounting records
  • VAT account
  • copies of all VAT invoices issued
  • VAT invoices received
  • certificates issued under provisions relating to fiscal or other warehouse regimes
  • documentation relating to acquisitions of any goods from other EC countries
  • copy documentation issued, and documentation received, relating to the transfer, dispatch or transport of goods by him to other EU countries
  • documentation relating to imports and exports
  • credit notes, debit notes and other documents which evidence an increase or decrease in consideration that are received, and copies of such documents issued
  • copy of any self-billing agreement to which the business is a party
  • where the business is the customer party to a self-billing agreement, the name, address and VAT registration number of each supplier with whom the business has entered into a self-billing agreement

Additionally

HMRC may supplement the above provisions by a Notice published by them for that purpose. They supplement the statutory requirements and have legal force.

Business records include, in addition to specific items listed above, orders and delivery notes, relevant business correspondence, purchases and sales books, cash books and other account books, records of daily takings such as till rolls, annual accounts, including trading and profit and loss accounts and bank statements and paying-in slips.

Unless the business mainly involves the supply of goods and services direct to the public and less detailed VAT invoices are issued, all VAT invoices must also be retained. Cash and carry wholesalers must keep all till rolls and product code lists.

Records must be kept of all taxable goods and services received or supplied in the course of business (standard and zero-rated), together with any exempt supplies, gifts or loans of goods, taxable self-supplies and any goods acquired or produced in the course of business which are put to private or other non-business use.

All records must be kept up to date and be in sufficient detail to allow calculation of VAT. They do not have to be kept in any set way but must be in a form which will enable HMRC officers to check easily the figures on the VAT return. Records must be readily available to HMRC officers on request. If a taxable person has more than one place of business, a list of all branches must be kept at the principal place of business.

Comprehensive records

In addition, we always advise businesses to retain full information of certain calculations such as; partial exemption, the Capital Goods Scheme, margin schemes, TOMS, business/non-business, mileage and subsistence claims, promotional schemes, vouchers, discounts, location of overseas customers, MOSS, and distance selling amongst other records. The aim is to ensure that any inspector is satisfied with the records and that any information required is readily available. This avoids delays, misunderstandings and unnecessary enquiries which may lead to assessments and penalties.

If you have any doubts that your business records are sufficient, please contact us.

Ding Dong – Avon calling (for VAT)

By   21 December 2017
0

Latest from the courts

The CJEU case of Avon Cosmetics Limited considered the validity and completeness of a specific UK derogation called a “Retail Sale Direction”.

Background

Avon Cosmetics Limited (‘Avon’) sells its beauty products in the UK to representatives, known colloquially as ‘Avon Ladies’, who in turn make retail sales to their customers (‘direct selling model’). Many of the Avon Ladies are not registered for VAT. As a result, their profit margins would not normally be subject to VAT. As an example; an Avon Lady may buy goods from Avon at £50 and sell them at £70. In HMRC’s eyes, the £20 difference is not taxed.

“Lost VAT” Derogation

That problem of ‘lost VAT’ at the last stage of the supply chain is typical of direct selling models. In order to deal with the problem, the UK sought and obtained a derogation from the standard rule that VAT is charged on the actual sales price. In Avon’s case that derogation  allowed HMRC to charge Avon VAT, not on the wholesale price paid by the unregistered Avon Ladies, but instead on the retail price at which the Avon Ladies would go on to sell the products to the final consumer. However, the way the derogation is applied does not take into account the costs incurred by the unregistered representatives in their retail selling activities, and the input tax that they would normally have been able to deduct had they been VAT registered (‘notional input tax’). In particular, where Avon Ladies buy products for demonstration purposes (not to resell but to use as a selling aid) they cannot deduct VAT on those purchases as input tax.  The result is that the disregarded notional input tax in relation to such costs ‘sticks’ in the supply chain and increases the overall VAT charged on the direct selling model over that charged on sales through ordinary retail outlets.

Challenge

The appeal by Avon concerns the interpretation and validity of the Derogation.

In particular

  • whether there is an obligation to take into account the notional input tax of direct resellers such as the Avon Ladies
  • whether there was an obligation for the UK to bring the issue of notional input tax to the EC’s attention when it requested the Derogation, and
  • what would be/what are the consequences of failing to comply with either of those obligations?

Result

The CJEU found that neither the derogation authorised by Council Decision 89/534/EEC of 24 May 1989 authorising the UK to apply, in respect of certain supplies to unregistered resellers nor, national measures implementing that decision infringe the principles of proportionality and fiscal neutrality. Therefore, output tax remains due on the ultimate retail sale value, but there is no credit for any VAT incurred by the Avon Ladies.

Deregistration – When a business leaves the VAT club

By   11 December 2017
0

This article considers when and how to deregister from VAT and the consequences of doing so.

General points

Deregistration may be mandatory or voluntary depending on circumstances. Although it may be attractive for certain businesses too deregister if possible, this is not always the case. The main reason to remain registered is to recover input tax on purchases made by a business. This is particularly relevant if that business’ sales are:

  • to other VAT registered businesses which can recover any VAT charged
  • supplies are UK VAT free (eg; zero rated)
  • made to recipients outside the UK and in some cases the EU

Businesses which make sales to the public (B2C) are usually better off leaving the VAT club even if this means not being able to recover input tax incurred.

A business applies for deregistration online through its VAT account, or it can also complete a form VAT7 to deregister by post.

NB: These rules apply to businesses belonging in the UK.  There are different rules for overseas business which are outside the scope of this article.

The Rules

Compulsory deregistration

A business must deregister if it ceases to make taxable supplies. This is usually when a business has been sold, but there may be other circumstances, eg; if a business starts to make only exempt supplies, or a charity stops making business supplies and continues with only non-business activities or when an independent body corporate joins a VAT group. In such circumstances there is a requirement to notify HMRC within 30 days of ceasing to make taxable supplies.

We have seen, on a number of occasions, HMRC attempting to compulsorily deregister a business because either; it has not made any taxable supplies (although it has the intention of doing so) or it is only making a small amount of taxable supplies. In the first example, as long as the business can demonstrate that it intends to make taxable supplies in the future it is entitled to remain VAT registered. This is often the position with; speculative property developers, business models where there is a long lead in period, or business such as exploration/exploitation of earth resources.

Voluntary deregistration

A business may apply for deregistration if it expects its taxable turnover in the next twelve to be below the deregistration threshold. This is currently £83,000 which was unchanged in this month’s Budget. It must be able to satisfy HMRC that this is the case. Such an application may be made at any time and the actual date of leaving the club is agreed with HMRC. It should be noted that when calculating taxable income, certain supplies are excluded. These are usually exempt supplies but depending on the facts, other income may also be ignored.

Consequences of deregistration

  • Final return

A deregistered business is required to submit a final VAT return for the period up to and including the deregistration date. This is called a Period 99/99 return.

  • Output tax

From the date of deregistration a business must stop charging VAT and is required to keep its VAT records for a minimum of six years. It is an offence to show VAT on invoices when a business is not VAT registered.

  • Input tax

Once deregistered a business can no longer recover input tax. The sole exception being when purchases relate to the time the business was VAT registered. This tends to be VAT on invoices not received until after deregistration, but were part of the business’ expenses prior to deregistration. Such a claim is made on a form VAT427

  • Self-supply (Deemed supply)

An often overlooked VAT charge is the self-supply of assets on hand at the date of deregistration. A business must account for VAT on any stock and other assets it has on this date if:

  1. It could reclaim VAT when it bought them (regardless of whether such a claim was made)
  2. the total VAT due on these assets is over £1,000

These assets will include items such as; certain land and property (usually commercial property which is subject to an option to tax or is less than three year old), un-sold stock, plant, furniture, commercial vehicles, computers, equipment, materials, etc, but does not include intangible assets such as patents, copyrights and goodwill. The business accounts for VAT on the market value of these assets but cannot treat this as input tax, thus creating a VAT cost.

We usually advise that, if commercially possible, assets are sold prior to deregistration. This avoids the self-supply hit and if the purchaser is able to recover the VAT charged the position is VAT neutral to all parties, including HMRC. It is worth remembering that the self-supply only applies to assets on which VAT was charged on purchase and that there is a de minimis limit. We counsel that care is taken to ensure planning is in place prior to deregistration as it is not possible to plan retrospectively and once deregistered the position is crystallised.

  • Re-registration

HMRC will automatically re-register a business if it realises it should not have cancelled (eg; the anticipated turnover exceeds the deregistration threshold). It will be required to account for any VAT it should have paid in the meantime.

  • Option To Tax

An option to tax remains valid after a registration has been cancelled. A business must monitor its income from an opted property to see whether it exceeds the registration threshold and needs to register again.

  • Capital Goods Scheme (CGS)

If a business owns any capital items when it cancels its registration, it may, because of the rules about deemed supplies (see self-supply above) have to make a final adjustment in respect of any items which are still within the adjustment period. This adjustment is made on the final return.

  • Cash Accounting

A business will have two months to submit its final return after it deregisters. On this return the business must account for all outstanding VAT on supplies made and received prior to deregistration. This applies even if it has not been paid. However, it can also reclaim any VAT provided that you have the VAT invoices. If some of the outstanding VAT relates to bad debts a business may claim relief.

  • Partial exemption

If a business is partly exempt its final adjustment period will run from the day following its last full tax year to the date of deregistration.  If a business has not incurred any exempt input tax in its previous tax year, the final adjustment period will run from the first day of the accounting period in the final tax year in which it first incurred exempt input tax to the date of deregistration.

  • Flat Rate Scheme

If a business deregisters it leaves this scheme the day before its deregistration date. It must, therefore, account for output tax on its final VAT return for sales made on the last day of registration (which must be accounted for outside of the scheme).

  • Self-Billing

If your customers issue VAT invoices on your behalf under self-billing arrangements (or prepare authenticated receipts for you to issue) a deregistering business must tell them immediately that it is no longer registered. They must not charge VAT on any further supplies you make. There are financial penalties if a business issues a VAT invoice or a VAT-inclusive authenticated receipt for supplies it makes after its registration has been cancelled.

  • Bad Debt Relief (BDR)

A business can claim relief on bad debts it identifies after it has deregistered, provided it:

  • has previously accounted for VAT on the supplies
  • can meet the usual BDR conditions 

No claim may be made more than four years from the date when the relief became claimable.

Summary

As may be seen, there is a lot to consider before applying for voluntary deregistration, not all of it good news. Of course, apart from not having to charge output tax, a degree of administration is avoided when leaving the club, so the pros and cons should be weighed up.  Planning at an early stage can assist in avoiding in nasty VAT surprises and we would always counsel consulting an adviser before an irrevocable action is taken. As usual in VAT, if a business gets it wrong there may be an unexpected tax bill as well as penalties and interest.

VAT: New rules for online sellers of goods

By   6 December 2017
0

The European Commission announced on 5 December 2017 that it will introduce simpler and more efficient rules for businesses that sell goods online.

It announced that there has been agreement by Economic and Finance Ministers of EU Member States on a series of measures to improve how VAT works for online companies in the EU. It is intended that the new system will make it easier for consumers and businesses, in particular start-ups and SMEs, to buy and sell goods cross-border online. It will also help Member States to recoup the current estimated €5 billion of VAT lost on online sales every year.

The new rules will progressively come into force by 2021 and will:

  • Simplify VAT rules for start-ups, micro-businesses and SMEs selling goods to consumers online in other EU Member States. VAT on cross-border sales under €10,000 a year will be handled according to the rules of the home country of the smallest businesses, giving a boost to 430 000 businesses across the EU. SMEs will benefit from simpler procedures for cross-border sales of up to €100,000 annually. These measures will enter into force by 1 January 2019.
  • Allow all companies that sell goods to their customers online to deal with their VAT obligations in the EU through one easy-to-use online portal in their own language. Without the portal, VAT registration would be required in each EU Member State into which they want to sell – a situation cited by companies as one of the biggest barriers for small businesses trading cross-border.
  • For the first time, make large online marketplaces responsible for ensuring VAT is collected on sales on their platforms that are made by companies in non-EU countries to EU consumers. This includes sales of goods that are already being stored by non-EU companies in warehouses (so-called ‘fulfilment centres’) within the EU which can often be used to sell goods VAT free to consumers in the EU.
  • Address the problem of fraud caused by a previously misused VAT exemption for goods valued at under €22 coming from outside the EU which can distort the market and create unfair competition. Previously, fraudsters had been able to mislabel high value goods in small packages as having a value under the threshold of €22, making the goods exempt from VAT and creating an unacceptable gap of €1 billion in revenues which would otherwise have gone to the budgets of EU Member States.

The new rules will ensure that VAT is paid in the Member State of the final consumer, leading to a fairer distribution of tax revenues amongst EU Member States. They will help to cement a new approach to VAT collection in the EU, already in place for sales of e-services, and fulfil a core commitment of the Digital Single Market (DSM) strategy for Europe. The agreement also marks another step towards a definitive solution for a single EU VAT area, as set out in the Commission’s recent proposals for EU VAT reform.

The One Stop Shop for sales of online goods is due to come into effect in 2021 to give Member States time to update the IT systems underpinning the system.