VAT: Call off stock changes made
In the second of his articles on how to account for call off stock, Neil Warren discusses the new VAT procedures from 1 January 2020, which have legal effect in the UK from 16 March 2020.
EU Law was amended from 1 January 2020 to introduce simplified VAT procedures for call off stock held in EU member states (Council Directive 2018/1910).
The aim of the changes is to give consistency of treatment throughout the EU and if the procedures are followed, a UK business will not need to register for VAT in the member state where call off stock is held. The VAT registered customer in that country will instead account for acquisition tax on the date when the stock is called off. See my previous article VAT: Call off stock basic rules.
There are four main changes that took effect from 1 January 2020 and they apply to goods that were despatched from the supplier’s country on or after this date. The changes will apply to UK businesses until at least 31 December 2020 when our transitional deal ends with the EU:
Call off stock register
A supplier must now keep a ‘call-off stock register’, giving full details of all call-off stock movements and the dates when stock is called off by the customer.
Trading agreements and contracts between customers and suppliers should cover call off stock arrangements, so that both parties are very clear about the VAT procedures.
If goods are not called off by the customer (ie delivered to the customer) within 12 months of their arrival, the supplier will need to register for VAT in that country and account for domestic VAT.
If, for example, the customer receiving the call-off stock ceases to trade or deregisters, this will be a ‘relevant event’ and has the effect that the supplier will need to register for VAT in that country because the call off arrangement has ceased. However, the call-off position can be maintained if a ‘substitute customer’ is found.
EC Sales Lists
EC Sales Lists (ESLs) must also be completed, and since 1 January 2020, there are three new codes that apply to call off stock arrangements:
- Code 04: for transport of stock
- Code 05: for stock returned to the UK
- Code 06: records a change in the ‘intended acquirer’ of the goods ie a new VAT registered business in that country will call off the stock instead of the original customer
Note, the sales value is not recorded on the ESL until the customer calls off the stock so this box is left blank for the new codes. It is then recorded in the same way as any other sale when the call off takes place.
It is important that ESLs are properly completed to ensure that the tax authorities in the EU member states don’t seek to overrule the call off stock arrangement and require a UK business to register for VAT in that country instead. See HMRC guidance on how to report your EU sales for VAT.
End of transition deal
The call off arrangements were not affected by the UK’s departure from the EU on 31 January. But when the transitional deal ends on 31 December 2020, UK businesses will probably need to get a VAT number in each EU country where they hold call off stock and pay import VAT when the goods arrive in the country. This is because the arrival of the goods will then be an import rather than an acquisition. However, this situation will depend on the outcome of our trading negotiations with the EU.
Now is a good time to review call off stock arrangements with your clients who trade in this way, to ensure that the changes introduced on 1 January 2020 have been properly dealt with, particularly in relation to EC Sales Lists. It is also important that clients are prepared for the likely moving of the goalposts after 31 December 2020.