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Common challenges with EC Sales Lists

6th Sep 2016
Independent VAT Consultant
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Neil Warren answers some common questions asked about EC Sales Lists (ESLs) to ensure that penalties are avoided.

Penalties

The first-tier tribunal recently decided that HMRC was correct to charge two penalties to a business which sells guitars for failing to submit ESLs on time. AGC Customs Ltd (TC05267) claimed that the returns had been posted before the deadline dates but had been lost in the post.

An argument was also raised that the penalties totalling £1,280 were for ‘an extortionate amount’ but the argument of proportionality was doomed to fail, as was the postal argument. As the tribunal noted: “that the post should fail to deliver on two consecutive occasions is highly improbable.”

Failure to submit past returns

What happens if a business which has been selling goods or services to EU business customers for many years, but has never submitted ESLs? This situation would normally only occur for a business selling services because the sale of goods is recorded in Box 8 of the VAT return, and would therefore trigger an ESL request from HMRC.

Should the business submit the ESL returns for the current and future periods, or is it necessary to go back and complete them retrospectively? The answer is that all returns should be submitted where relevant sales have been made, but there is no need to submit a nil return for periods with no EU sales.

What about penalties?

If the retrospective ESL returns are all submitted, HMRC will not charge a penalty because they would not have issued a penalty liability notice, which always precedes a penalty.

Here’s how the penalty system works in practice:

Deadline missed

The deadline for submitting the ESL is 21 days after the end of the period if it is submitted online, or 14 days after the period end if it is submitted in paper format.

Say HMRC identify a business which needs to submit an ESL for June 2016. If the ESL has not been submitted by 21 July, they will write to the business giving it 14 days from the date of the letter to submit it. If the deadline is missed, a penalty of £5 per day will be charged until it is received by HMRC, to a maximum of 100 days.

If the June 2016 return is submitted on time, then a penalty of £5 per day will be issued if the September 2016 return is submitted late. This also applies if any ESL return is submitted late within the next 12 months, which is the default period. For a second offence a penalty of £10 per day is charged, and then £15 per day for future offences. All penalties are capped at 100 days. So a non-compliant business that is always late with its ESL could be fined £1,500 for a delayed ESL return (VATA 1994 s 66).

Errors on past ESLs

Example

John is a sole trader computer consultant who sells his services to a Swedish business customer. He has discovered that he incorrectly showed sales of £1m instead of £1,000 to the customer on his ESL for March 2016. How should he correct the error?

Solution

If John submits his ESLs online, and discovers the error within 21 days of the submission date, he can make the correction online.

However, the 21-day correction period is not relevant here, so John must complete form VAT101B, which allows up to five errors on previous ESLs to be corrected. That form also allows previous omissions to be included (eg if a customer’s sales were missed off the original declaration) and also for lines on the original return to be deleted if appropriate.

Errors discovered by HMRC

If HMRC discover an error on an ESL return during a compliance visit, they will send the business a polite written warning if it is the first occasion on which a major error has been found. A formal notice will be sent on the second occasion of an error, if this occurs within two years of the first letter. Then if another major inaccuracy occurs within the next two years after the notice, the business is into a penalty situation. But the penalty will not break the bank – it is just £100, so definitely a light touch approach that only penalises the very serious and persistent inaccuracies. 

Replies (6)

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By chewmac
12th Jan 2018 10:39

Just completing my first ESL for a while - I notice that I cannot add the ESL service to my HMRC Agent Service - meaning that the client must complete these for themselves - does this ring-true to others?

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Replying to chewmac:
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By DMGbus
12th Jan 2018 13:36

If by ESL you mean ECSL (ie. EC Sales Lists) then the appointment of an agent is made via the client's own GG account.

The process works as follows (assuming ECSL already listed as a service for the client):

1. Agent logs into www.gateway.gov.uk and makes a note from there of "Agent ID" which will be in a format similar to DM67-GB88VV4K7ABC (access this by clicking on "Your Account")

2. Client logs into their own GG account and selects "Manage Services"

3. On the list of services look for EC Sales Lists and click on "Appoint Agent"

4. A window opens up where Gateway Agent ID has to be typed in (see step 1 above how to obtain)

5. Click continue, log in page comes up, client types in their GG ID & PW

Then the service / client should appear on agent's services list.

The above proceedure avoids the Authorisation Codes by post proceedure and is good for most services that the client has on their list (eg. PAYE, CIS, VAT return filing, ECSL). I prefer this method of agent appointment as it seems to be a much quicker process.

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Replying to DMGbus:
By chewmac
22nd Jan 2018 11:44

Thank you DMGbus - that was a hugely helpful reply but I'm afraid didn't work in this case. I could not for the life of me find "Manage Services" on clients Online Service. Could be because they've been transferred to the new Business Tax Account. But thanks all the same.

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Replying to chewmac:
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By DMGbus
22nd Jan 2018 14:05

So far as I have seen, the manage services option is only available by client logging into www.gateway.gov.uk - not logging into usual hmrc services.

Thanks (1)
By chewmac
30th Jan 2018 13:23

Thanks again. Using Government Gateway to manage these services was a revelation. I've got further with your instructions but it seems that as non-VAT registered Agent I cannot add EC Sales Lists to my own list of HMRC Online Services - so for me personally, it won't work! Thanks again though.

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By alicericc
25th Apr 2018 19:35

Hello,
I have a question about EC Sales List. My company has been selling to a business in Germany. It has been a 3-way transaction. My German buyer would order from my company, I would order from my supplier in the UK, he would invoice my business and send the order to my buyer directly. Because it was a 3-way transaction and all of us 3 businesses are registered for VAT, I initially thought that my supplier accounting for the transaction in his VAT return was enough and I didn't need to declare it to avoid duplication. Then having read more about it, I realised that I had to declare it as well in the VAT return and started declaring it. The transactions were zero-rated for VAT because all of us have VAT registered businesses. I want to correct my VAT returns for the periods I have not done correctly. How can I do it and how far can I go back? The first sale dates back to December 2014. Should I make the corrections both in the quarterly returns and EC Sales List? How should I submit the latter - to HMRC or the VAT office in Germany? Should I expect a penalty and what could it be? Thank you in advance!

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