Death and ever-more complicated taxes

January 1, 2010 saw the first of five sets of annual changes intended to cut down on VAT fraud and ease cross-border commerce within the EU. Ignorance is perilous…

All businesses (you and your clients) need to be aware of changes to the VAT regulations being implemented from the beginning of 2010. The best-publicised of these is, of course, the return to 17.5% from the lowered 15% rate introduced at the beginning of the recession. The rate change is simple in and of itself, but businesses need to watch out for knock-on effects regarding work carried out in 2009 but not invoiced until 2010.

“Where businesses haven’t invoiced yet, they can [still] apply the 15% rate,” says Karen Mulcahy, a consultant with Hampshire-based The VAT Consultancy (www.thevatconsultancy.com).

Less well known but equally significant changes include rising penalties: HMRC may now charge up to 100% of erroneously unpaid tax if they think you have been insufficiently careful in preparing your return.

In addition, under the new rules, Mulcahy explains, cross-border supply of services is now destination-based rather than origin-based. If you do work for a customer in the Netherlands, for example, using a mechanism called reverse-charging your customers will charge themselves Dutch VAT and recover as much of that as they’re allowed. You will need to obtain their VAT registration number and complete an EC sales list that until now has been used for goods. This will not be sent to you automatically; you will have to ask HMRC for it.

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Cross-border VAT changes 2010
HMRC’s page on the new VAT rules:
www.hmrc.gov.uk/VAT/cross-border-changes-2010.htm