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Complying with the new 2015 VAT rules
In our second video, we looked at the business implications of the 2015 VAT rule changes. Now we are going to take a closer look at the practicalities of complying with these new ‘place of supply’ rules.
If your businesses is to meet its obligations – in terms of capturing customer data, charging VAT at the correct rate, issuing invoices that comply with local rules and also reporting and remitting VAT correctly (whether through local VAT registrations or via the mini One Stop Shop) – you will need to act now to review your existing systems and invoicing protocols.Are your supplies affected?
The obvious first step is to determine whether your supplies are affected by the 2015 rule changes, but this may involve considering whether any element of your offering is ancillary to another supply not caught by the new rules.
So for instance, if you supply books ,magazines or journals and you also give customers digital access to that content, you will need to decide whether the electronic delivery is in fact ancillary to the physical books and therefore not caught by the 2015 rules.
Customer master data
Capturing and managing customer data is going to be a crucial compliance issue for businesses. The onus really is going to be on the supplier to provide evidence of where their customer is based and what their VAT status is. Hand in hand with that go data storage considerations and systems challenges.
Identifying who the customer is and whether they are registered for VAT is absolutely critical – but not straightforward.B2C transactions are typically pretty easy to identify, but distinguishing business customers can be more challenging. Charities, educational institutions and small businesses may be ‘in business’, but not registered for VAT. For commercial reasons, these customers may prefer to receive supplies as a business customer, however the implementing regulations for the new rules allow suppliers to take the non-existence of a VAT number to mean that a customer is non-business, and therefore charge VAT.
Evidence to determine place of supply
Businesses will need to collect evidence as to where customers are established. And the rules require two non-conflicting pieces of information from a prescribed list, such as billing address and bank details. Your point of sale must be able to collect enough evidence from the customer to meet this rule, and your system must be able to make decisions if, say, four pieces of evidence for one customer point equally in pairs to two different tax jurisdictions.However, in certain circumstances you will need to bear in mind that there is also a separate list of presumptions which must be used as evidence for supplies of services requiring the physical presence of the customer, for example Wi-Fi in a hotel lobby, or the supply of fixed-line telecoms. In order to rebut these presumptions, three piece of non-conflicting evidence are needed, not the usual two and this is why you cannot simply apply a blanket approach to gathering evidence.
Systems and data storage
All of this customer information needs to be stored in line with local data protection laws. You might want to consult your legal adviser as to the implications of this. Bear in mind also that if you are using the mini One Stop Shop, data may need to be stored for ten years.
Systems and customer experience
From a front office perspective, think about your customer experience – what will they expect to see? If the point of sale experience is lengthened or made more complicated in an effort to gather evidence, how will this affect customer’s online shopping experience and their propensity to return to the website?
Systems and pricing
Obvious though it sounds, charging the correct rate of VAT at a local level is absolutely paramount. If your system does not have this capability, this needs to be addressed urgently.
We’ve talked in a previous video about the need to decide between universal pricing, which may diminish or enhance margins in some territories, or differential pricing. But if your system cannot reliably calculate the correct VAT at the point of sale, then you will have no choice but to go for fixed prices and seek to calculate VAT retrospectively on the gross amounts received. Either way, the correct rate of VAT will need to be accounted for and remitted.
Systems and invoicing
It was hoped that under the mini One Stop Shop, suppliers would be able to issue one standard style of invoice across all member states. Disappointingly, that hasn’t proved the case. So remember that invoicing rules differ from one member state to another and your systems must be able to issue a full VAT invoice complying with local rules, including language and currency.
Reporting VAT from 2015
So let’s talk about whether you should be looking to use the mini One Stop Shop or use local VAT registrations. As you might expect, there are pros and cons to either.
For instance, with MOSS, businesses must keep records for ten years and any input tax incurred in other member states can only be reclaimed via the EU refund scheme – which can be a lengthy process. That said, if you simply sell services through the web you may well find that such input tax is very limited or minimal. Also, MOSS returns and payments are due within 20 days of the end of the VAT period, which is a shorter deadline than many local VAT registrations and therefore this has some implications from a cash flow perspective.
If you have an existing VAT registration number in other member states, for distance selling purposes perhaps, it may be easier to use this to report the VAT on B2C sales post 2015.
Local VAT registrations are generally administratively more complicated from a processing perspective, but have the advantage of normally allowing quicker repayment of any VAT you incur and in addition to that the information keeping requirements are not as lengthy.
You might also want to consider whether you want to be filing up to 28 individual VAT returns, or would rather process a single return through the mini One Stop Shop online portal.
All suppliers, both EU and non EU, will also need to consider their eligibility to use the mini one stop shop, as certain conditions do apply.
Opportunity for change
With changes on the horizon, many companies will be thinking about how to best tackle their obligations. Many will continue to handle compliance internally. Others may look at outsourcing these obligations. Whichever option you choose, this is a time of change and a good opportunity to revisit how you carry out these activities within your organisation.
A lot of our clients have started to make the changes necessary. If you haven’t yet begun this process, you need to do so now.
To find out more
We hope you have found these videos informative. Please do speak to your KPMG adviser to talk through these important changes. You can also find out more by visiting our website at www.kpmg.com/uk/VAT2015
Our final video about the 2015 VAT changes focuses on the practical decisions your business must make to be ready by 1 January 2015. In this video we look at:
If you are mainly interested in the pros and cons of the Mini-One-Stop-Shop versus Local VAT Registrations, you may wish to watch our shorter version of the video which focuses on this issue.
To find out more, visit our 2015 webpage or speak to your local KPMG advisor.
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