VAT on cross-border services
If you supply or receive cross-border services, beware of changes to the VAT rules that will come into effect EU-wide on 1 January 2010. Services that were not liable to UK VAT before that date could now become liable.
A service is liable to UK VAT if it takes place in the UK. Currently, the basic rule (subject to exceptions) is that the service takes place where the supplier ‘belongs’ (is established). From 1 January 2010, this treatment will still generally be true if the customer is a private consumer (non-business customer), but if the supply is to another business, the service will generally be treated as taking place where the customers are established. Under the reverse-charge rules, customers will then have to account for VAT in their home country on that service. There will, as before, be exceptions to the basic rule, such as for hiring vehicles, transport of goods, services connected with land etc.
Although the new rules will greatly reduce the number of occasions where a business incurs VAT outside its own member state, there will be added bureaucracy. Businesses will be expected to report services supplied to and taxed in other member states, and not just goods (as now), in their EC sales lists.