In this article, I ask my VAT colleague, Mitchell Piper, for his views on how businesses can keep up to date with VAT changes.
Value Added Tax (VAT), like all taxes, evolves over time to adapt to changes in society, technology and business practices. Good examples of this are the recent VAT rate reductions in the UK, Germany, and Ireland designed to support economic growth and jobs in the wake of COVID-19. While change can clearly be beneficial, it can also cause complexity.
Unlike larger businesses which may have experienced in-house tax functions, mid-market businesses often do not have access to dedicated tax specialists. As a result, new VAT rules that impact the business may go unnoticed and therefore unaddressed, only to be discovered when it is too late (such as when a business is being sold or during a routine tax audit).
With future uncertainty related to COVID-19 and Brexit to consider as well, how can mid-market businesses effectively manage new VAT obligations and minimise risk in an environment where VAT is constantly evolving?
Keep up to date with proposed changes
Half the challenge is simply being aware of new changes. For example, in the UK and the EU many key aspects of the VAT framework have been amended in recent years and interpretations of existing rules have been challenged by the courts. Some of the recent rule changes to UK and EU VAT since 2019 include:
- Making Tax Digital (MTD) – a new regime which requires businesses to maintain digital records and file VAT returns electronically using compatible software. A digital journey requirement takes effect from April 2021 that requires a digital audit trail from source systems to the VAT return filed with HMRC.
- EU intra-community trade in goods – amendments called the EU VAT ‘quick fixes’, which imposed new obligations for businesses involved in moving goods between EU countries.
- Recovery of import VAT – a change in policy from HMRC that UK import VAT can only be recovered by the importer if they legally owned the goods at the time of import.
There are also many VAT changes being introduced in 2021 in the UK and EU that businesses should be aware of, such as, the new B2C e-commerce and marketplace rules for selling goods cross-border in the EU27 Member States, and broad Brexit related changes in the UK (including the removal of EU VAT simplifications, potential added complexity for goods sold in Northern Ireland, and changes to the VAT treatment of low value goods sold and delivered to UK customers from abroad when the Brexit transition period concludes).
For those businesses providing digital services, the shift towards taxation where the customer is based means that VAT implications often extend beyond the home country of the business.