Around 50% of businesses do not recover VAT incurred overseas and there is an estimated $5 billion not reclaimed each year.
Tag Archives: ec-vat
EU – Elimination of the threshold-based customs duty relief
The EU will abolish the rule that Customs Duty does not apply to low value goods (less than €150) entering the EU
It will impose a fixed Customs Duty of €3 from 1 July 2026, until completion of the EU data hub which is expected to be on 1 July 2028.
When operational, the data hub will enable Customs Duty to apply to all imported goods, regardless of value, on an ad valorem basis.
Excise Duty: Your Christmas drink of choice, or perhaps not
A curious matter and one which brings into focus the drinking habits of people across the EU. Now, as those who know me will be aware, I am not adverse to a good single malt, nor a decent claret, but I do wonder sometimes where people draw the line.
Background
It transpires that in Lithuania people who choose not to drink, or cannot afford, even the cheapest alcoholic items have turned to drinking perfume and mouthwash which contain isopropyl alcohol. This has a similar effect on the human body to what most people would regard as being from more usual beer, wine or spirits etc. Sounds delicious eh?
Issue
The issue was whether these products where subject to Excise Duty, or, as the appellant contended, they were duty free as cosmetic products.
Decision
The AG found that isopropyl alcohol is almost unpalatable to most people. The fact that Bene Factum held out, advertised and marketed to people to drink the products did not affect the fact that the main purpose of the goods was for their use as cosmetics and mouthwash. What must be considered is Excise Duty depends on an objective classification to determine whether it is intended for human consumption. This classification is not affected by the fact that Bene Factum actively encouraged people to drink these products rather than use them for cosmetic purposes.
Consequently, the goods where not subject to Excise Duty. Good news for Lithuanian alcohol connoisseurs! It remains to see if the court follows this opinion, in most cases they do, but one never knows.
Commentary
If there is anybody out there who is getting ready for their Christmas party, looks at some cosmetic products and considers taking a swig, I make the following comments:
- Probably best to stick supermarket own brand booze if money is an issue
- I expect that these things taste absolutely terrible (although I have not sampled them)
- I tend to stick to things that are to be applied externally doing just that with them without ingestion
- If you can’t decide whether to gargle with something or drink it, I counsel spitting it out
- If these goods come to the UK, at least they will be even cheaper being duty free. I am not sure that is a good thing.
VAT: EORI – What is it? Do I need one?
EORI is an acronym for Economic Operator Registration & Identification.
An EORI number is assigned to importers and exporters by HMRC (EOs) and is used in the process of customs entry declarations and customs clearance for both import and export shipments moving to or from the UK.
What is the EORI number for?
An EORI number is stored both nationally and on a central EU EORI database. The information it provides is used by customs authorities to exchange information, and to share information with government departments and agencies. It is used for statistical and security purposes.
A business may need to demonstrate to HMRC that it has carried out proper due diligence in certain cases.
Who needs an EORI number?
You will require an EORI number if you are planning to import or export goods. EOs can be sole proprietors, partnerships, UK incorporated companies, registered charities, and overseas companies. However, private individuals bringing their own possessions to or from the UK do not need an EORI number. An EO does not need to be VAT registered to have an EORI number.
For VAT groups, each member who imports or exports goods needs an EORI number.
Format of the EORI number
VAT registered companies will see the EORI as an extension of their VAT number. Your VAT nine digit VAT number will be prefixed with “GB” and suffixed with “000”.
How do I apply for an EORI Number?
Non VAT registered companies can apply using this link – FORM C220
VAT registered companies can apply using this link – FORM C220A
Once completed, your form should be emailed to: eori@hmrc.gsi.gov.uk
How long will my EORI application take?
The process is straightforward and EORI applications usually take up to three working days to process.
Please contact us if you have any issues with importing or exporting.
EORI checker
Gov.uk has provided a new tool to check a business’ EORI number. (This used to be an EU resource now not available due to Brexit).
Access
Who has access to an EORI number?
The general public can access limited data, When a business is notified of its EORI number, it will be asked whether it objects to this data being published on the site.
VAT in the Digital Age (ViDA)
EU Member States (MS) recently agreed the much-discussed ViDA package. Since Brexit, this does not directly affect the UK, however, it is an important pointer to the future and where we are all heading, so it will impact the UK in some ways.
The ViDA package (or a version of the finalised package) was first discussed in 2022 and has gone through a tortuous process before all MS agreed it.
What is ViDA?
ViDA aims to tackle what have been identified as three main challenges:
- Real-time digital reporting
The new system introduces real-time digital reporting for cross-border trade, based on e-invoicing. It will give MS the information they need to increase the fight against VAT fraud, especially carousel fraud. The VAT Gap – the difference between expected and actual VAT revenue, has been widening across the EU over a number of years.
It is said that the move to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU businesses by over €4.1 billion per year over the next ten years. It should ensure that existing national systems converge across the EU, and this should pave the way for EU countries that wish to introduce national digital reporting systems for domestic trade.
More on e-invoicing here.
- Updated rules for the platform economy
Technological and business developments, especially in e-commerce, mean that VAT rules have struggled to keep pace. Under the new rules, platforms facilitating supplies in the passenger transport and short-term accommodation sectors will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual providers.
This will ensure a uniform approach across all MS and contribute to a level playing field between online and traditional short-term accommodation and transport services. It will also simplify life for SMEs who currently need to understand and comply with the VAT rules, often in different EU countries.
- Single VAT registration
Building on the already existing VAT One Stop Shop (OSS) model for e-commerce, the package allows more businesses selling to consumers in another MSs to fulfil their VAT obligations via an online portal in one EU country. Further measures to improve the collection of VAT include making the Import One Stop Shop (IOSS) mandatory for certain platforms facilitating sales by persons established outside the EU to consumers in the EU.
Commentary
Many countries worldwide already have versions of e-invoicing and real-time reporting or plan to introduce them. Businesses operating in the EU will need to consider how the new rules impact them and what changes are needed for; systems, procedures, tax declarations, along with the commercial implications.
ViDA should result in a more harmonised VAT system and the UK will need to keep in step in order to avoid becoming even more of a commercial outlier.
The UK has also confirmed a consultation on e-invoicing so lessons which can be taken from ViDA will undoubtably inform the UK process.
Overseas businesses claiming VAT incurred in the UK
Update
The HMRC form for overseas businesses claiming VAT incurred in the UK has been updated.
The form VAT65A to reclaim VAT paid in the UK if a business is not registered in the UK has been amended to include information about corresponding with HMRC by email.
Claims in the UK
A non-UK based business may make a claim for recovery of VAT incurred in the UK. Typically, these are costs such as; employee travel and subsistence, service charges, exhibition costs, tooling, imports of goods, training, purchases of goods in the UK, and clinical trials etc.
Who can claim?
The scheme is available for any businesses that are:
- not VAT registered in the UK
- have no place of business or other residence in the UK
- do not make any supplies in the UK
What cannot be claimed?
The usual rules that apply to UK business claiming input tax also apply to claims from overseas. Consequently, the likes of; business entertainment, car purchase, non-business use and supplies used for exempt activities are usually barred.
Amount
There is no maximum claim amount, but for most periods of less than twelve months a minimum of £130 of VAT must be claimed. For annual claims or for periods less than three months ending on 30 June, the VAT must be at least £16.
Process
The business must obtain a Certificate Of Status (CoS) from its local tax or government department to accompany a claim.
The CoS must be the original and contain the:
- name, address and official stamp of the authorising body
- claimants name and address
- nature of the claimant’s business
- claimant’s business registration number
The CoS is only valid for twelve months. Once it has expired you will need to submit a new CoS.
HMRC has previously announced (RCB 12 – 2018) that it is taken a firmer stance on what constitutes an acceptable CoS.
Claim form
The application form is a VAT65A and is available here Original invoices which show the VAT charged must be submitted with the claim form and CoS. Applications without a certificate, or certificates and claim forms received after the deadline are not accepted by HMRC. It is possible for a business to appoint an agent to register to enable them to make refund applications on behalf of that business.
Deadline
Claim periods run annually up to 30 June and must be submitted by 31 December of the same year. With the usual Christmas rush and distractions, it may be easy to overlook this deadline and some claims may be significant. Unfortunately, this is not a rapid process and even if claims are accurate and the supporting documents are in all in order the claim often takes some time to be repaid. Although the deadline is the end of the year HMRC say that it will allow an additional three months for submission of a CoS (only).
Payment
Refunds are made within six months of a “satisfactory application”.
VAT: New rules for registration and reporting in the EU from 1 January 2025
EU Member States have agreed to extend similar VAT registration thresholds utilised by domestic businesses to EU non-resident taxpayers.
VAT scheme for Small Businesses
New simplification rules will open the VAT exemption to small businesses established in other member states and help reduce VAT compliance costs. The new regime should reduce red tape and administrative burdens for SMEs and create a level playing field for businesses regardless of where they are established in the EU. The new VAT scheme for SMEs will apply from 1 January 2025.
The new scheme
Current rules on the exemption of supplies under a certain threshold:
- Member States are allowed to exempt supplies by small enterprises with an annual turnover not exceeding a given threshold, different in each Member State.
- Small enterprises not established in a certain Member State have, however, no access to such an exemption.
New rules on the exemption of supplies under a certain threshold
- Member States will be allowed to continue exempting small businesses with an annual turnover not exceeding a given threshold, which cannot be higher than € 85,000 (maximum exemption threshold).
- The new rules will open the exemption to small enterprises established in other Member States than the one in which the VAT is due. The exemption will apply if the turnover in Member State where the SME is not established is below the national threshold and if the annual turnover in all of the EU is below €100,000. This is a safeguard threshold preventing companies with large turnover to benefit from the SME exemption in other Member States. For this purpose, SMEs will be able to use the single registration window in their own Member State.
The new rules will provide exempt SMEs with simplifications in terms of registration and reporting. These rules should reduce the overall VAT compliance costs for SMEs by up to 18% per year.
Evidence of UK establishment required for certain VAT registered businesses
Businesses registered for VAT at a high-volume address will be asked by HMRC to prove they are established in the UK.
High-Volume Addresses
A high-volume address is where a single UK address is listed as the principal place of business (PPOB) for many VAT-registered businesses. We understand that many thousands of businesses are registered at single addresses in the UK.
HMRC will require proof of a place of belonging in the UK to avoid online marketplaces failing to account for output tax.
Online marketplaces
Online marketplaces are liable for the output VAT from sales on their platforms by overseas traders. HMRC understand that Non Established Taxable Persons (NETPs) have incorporated in the UK and provided UK address details to marketplaces. Since they are then no longer “overseas traders” these rules do not apply. In these situations, the NETP does not declare VAT and the marketplace does not become liable for it.
HMRC is writing to all VAT registered businesses with a PPOB at a high-volume address to ask for evidence to demonstrate that the business is actually established in the UK. If the business does not respond, by default, HMRC will consider the business to be a NETP and seek to recover VAT from the online marketplace business.
Evidence of UK establishment
HMRC will outline what specific evidence it will accept in their letter.
A VAT Did you know?
Dance classes in some EU countries are subject to different VAT rates depending on whether the dance style is considered artistic or entertainment. In the UK, belly dancing and ceroc lessons are standard rated, but ballet is exempt.
VAT: B2B and B2C – The distinction and importance
A key feature of the place of supply rules is the distinction between B2B (business to business) and B2C (business to consumer) supplies. The distinction is important because it determines, inter alia, whether GB VAT is applicable to a supply made by a GB supplier.
Status of the customer:
- B2C: A supply is B2C when the customer is a private individual, an organisation with only non-business activities or the supply is wholly for private use (eg for the private use of a business owner)
- B2B: A supply is B2B when the customer has any level of business activity (though if a supply is wholly for private use it remains B2C). It does not matter if the supply is for a non-business activity of the customer or if the customer is not VAT registered. All that matters is the customer has some level of business activity – this includes VAT exempt activity and taxable activity below the VAT registration threshold VAT place of supply.
To apply the B2B treatment a GB supplier must obtain evidence that the customer has business activities. If the supplier cannot obtain any evidence, they should apply B2C treatment.
- If the customer is VAT registered, the customer’s VAT number is evidence of status and it is good practice to quote this on the supplier’s invoice. A GB supplier should check the customer’s VAT registration number is in the correct format for the country concerned. This can be done via the EC Vies website. for EU customers. NB: Special evidence rules apply to electronically supplied services.
- If the customer is not VAT registered, a GB supplier should obtain and retain evidence that the customer has business activities. HMRC state “If your customer is unable to provide a VAT number, you can accept alternative evidence.This includes certificates from fiscal authorities, business letterheads or other commercial documents indicating the nature of the customer’s activities”.
A supplier needs to identify where his customer belongs in order to establish the place of supply.
VERY broadly, depending on the nature of the supply, the rule of thumb is that a B2B service is GB VAT free (it is subject to a reverse charge by the recipient as it is deemed to be “supplied where received”) but a B2C service is generally subject to GB VAT, regardless of the place of belonging of the recipient. There are exceptions to these rules however, such as the use and enjoyment provisions, land related services, hire of transport and admission to events.