This blog is about VAT. Rather than trying to provide totally comprehensive explanations of complex VAT issues, this blog seeks to be thought-provoking on all things VAT!
VAT registration rules: Changes for cross-border suppliers
HMRC have indicated that they will be implementing changes to the rules for registration for non-UK businesses providing goods or services to UK consumers. This change is tucked away in the Online Filing Consultation Document, and will have potentially costly implications for many such businesses. This is the link to the condoc.
The change follows a European Court decision called Schmelz (C-97/09). A German resident made low value supplies in Austria, and sought to benefit from concessions available to small businesses. The European Court held that those concessions were only available to resident businesses.
HMRC have indicated that business established outside the UK will be required to register for VAT when they make their first supply in the UK. They cannot benefit from the existence of the VAT registration threshold. HMRC suggest that the main area of impact will be those small businesses who trade across the Irish land border. HMRC recognise that this will impose a significant additional cost on such businesses, who may therefore avoid registration.
A further problem will be that UK-based businesses trading into other Member States will also be required to register for VAT there. One particular problem area is when a UK supplier makes supplies associated with land, where that land is located in another Member State. The Place of Supply rules mean that the supply takes place where the land is situated. See Notice 741A, chapter 6. UK-based suppliers will therefore be liable to be registered for VAT in other Member States. This is likely to create an additional burden for such businesses.
It seems unclear when the new rules will be implemented. This presents further uncertainty for UK-based businesses.