EU VAT changes for January 2020
There are major changes happening to VAT in Europe and they come in to effect on 1 January 2020.
No matter what happens with Brexit UK Businesses buying and selling intra-EU goods need to know about it and need to implement the measures in order to protect their VAT position and to mitigate exposure to assessments and penalties.
The current VAT system exempts the intra- community supply of goods, where the goods are despatched from one member state to another and from one taxable person to another, provided certain conditions are met.
Why are the changes taking place?
The EU is moving towards a destination system for VAT. It’s a long-haul project over the next decade. It is a major reform and aims to prevent widespread VAT fraud.
In the meantime, there are 4 changes being implemented. They are called the ‘Quick fixes’!
1. Call-off Stock
This is where goods are sent to a customer in another EU country and only supplied to them when they are ‘called off’. Therefore, because the supplier still owns the goods, they are required to register for VAT in that country and charge local VAT. In the UK and some other EU countries we already operate a concessionary treatment whereby the supplier does not have to register for VAT. Instead when the call-off happens it is treated as an intra-EU supply by the customer, under normal rules.
This treatment will now apply throughout the EU. There are conditions which must be met to be eligible:
- Must be call off stock for an identified customer;
- Customer must be registered for VAT
- Supplier must keep a register of the call off stock
- The goods must be supplied within 12 months of them entering the regime.
Its good news for those businesses who had to register in the EU and can now review and simplify their position.
2. Chain Transactions
What this fix is for:
Chain transactions are complex for VAT purposes and can lead to transactions being treated as VAT free when they should not be. This is because only one transport of the goods happen and it is this physical movement which makes it an intra EU supply.
This fix introduces uniform rules on chain transactions. It aims to clarify which transaction the transport is assigned to. It says that the intermediary supplier needs to give the original supplier its VAT number in order for the first transaction to be treated as an intra-EU supply.
This quick fix does not alter the triangulation simplification which still applies.
Businesses should review their transport arrangements to ensure that if they are the intermediary that they comply with the rules to avoid unnecessary VAT charges and possibly VAT registrations in other member states.
3. Proof of cross - border transport
To ensure that an intra-EU supply is zero-rated for VAT purposes, we all know that we need to prove that the goods have been physically moved to another member state.
From 1 January 2020 businesses will need to provide 2 items of documentary evidence.
- 2 category A documents; or
- 1 A and 1 B document
|CMR transport document||Insurance policy|
|Bill of lading||Bank document stating payment of transport|
|Air freight invoice||Public authority confirming arrival|
|Invoice from carrier||Confirmation of receipt by a Warehouse Keeper|
If the customer arranges transport they need to additionally provide the supplier with a special statement.
This is a tough measure and will need businesses to upgrade their admin processes to retain more proof of dispatch. Without implementing this measure businesses significantly increase their risk of a VAT assessment.
4. Mandatory reporting of VAT ID numbers
In the UK we are already required to quote our EU customers VAT number.
This measure now requires businesses to check the validity of their customers VAT number and to report it on the EC Sales list. Failure to prove it is valid and retain the evidence can lead to zero rating being withdrawn and an assessment for VAT.
This could easily become an expensive problem. From 1/1/20 businesses should:
- Check their master data for all customers VAT numbers and update
- Regularly validate the numbers on the VIES Europa website
- Ensure the VAT number is quoted on the invoice
- Complete the EC Sales list