VAT Package and Anti-fraud Measures Implementation Update: Adoption of EU Council Directive and Regulation Relating to EC Sales Lists and Time of Supply of Services (Update to Revenue & Customs Brief 53/08)

On 16 December 2008, the EU Council adopted a Directive 2008/117/EC and a Regulation (37/2009) relating to EC Sales Lists (ESLs) and the time of supply of services subject to the reverse charge.

The implementation date for these new measures is 1 January 2010. This Revenue & Customs Brief gives some information about how these measures will be implemented in the United Kingdom. It should be read in conjunction with Revenue & Customs Brief 53/08.

The main changes relate to the submission of ESLs. In principle, the new Directive provides that these should normally be submitted monthly, but it allows Member States to offer their businesses certain options. The United Kingdom intends to implement these as follows:

• ESLs relating to services may be submitted quarterly, relating to calendar quarters.
• From 1 January 2010, ESLs relating to goods may be submitted quarterly, relating to calendar quarters, provided that the value (excluding VAT) of supplies of goods to other Member States has not exceeded £70,000 in any of the previous 4 quarters.
• A business entitled to submit quarterly ESLs for goods can continue to do so unless the value of supplies of goods to other Member States exceeds £70,000 (excluding VAT) per quarter from 1 January 2010 to 31 December 2011 or £35,000 (excluding VAT) per quarter from 1 January 2012 onwards.
• If a business exceeds the quarterly goods threshold by the end of the first or second month in a quarter, an ESL must be submitted at the end of that month, covering the month or months in that quarter. Lists must be submitted monthly from then.
• Once a business is on a monthly cycle, because it has exceeded the threshold in any quarter, it must continue to submit monthly ESLs for goods until the value of its intra-Community trade in goods has been below the threshold for five consecutive quarters – it may then revert to quarterly submission if its trade remains below the threshold.
• A business required to submit monthly ESLs relating to goods may still submit ESLs relating to services quarterly.
• Any business may submit ESLs for goods and/or services monthly, if it wishes.

The other change to ESLs is that the time, within which both UK businesses and then HM Revenue & Customs (HMRC) must carry out their respective ESL obligations, has been reduced from three months to one. We intend to discuss this issue with business to explore how implementation can balance the needs of business and HMRC. Our current thinking is that businesses that submit paper ESLs would have 14 days from the end of the (last) month to do so. This period would be extended to 21 days for electronic submission of ESLs.

Finally, the Directive makes changes to the time of supply of services rules for services supplied to businesses in another Member State where the customer has to account fo1r VAT under the ‘reverse charge’. The changes are:

• the time of supply of such services will be the earlier of when the service is completed or when payment is made.
• for continuous supplies of services, the time of supply will be linked to the end of each billing or payment period, but where no invoice or other accounting document is issued or payment made during the year, the time of supply will be the end of each calendar year.

These changes will determine not only when the customer has to account for VAT under the reverse charge when the service is received from a supplier in another Member State, but also when a supplier is required to include the transaction on an ESL.

We intend to discuss implementation of the new time of supply rules with businesses, to understand their current accounting practices and their concerns about the changes likely to be needed. Our objective in implementing the rules will be to do so in a way which is as easy as possible for businesses to apply, and minimises additional burdens, while remaining consistent with the provisions of the Directive.

A consultation document covering changes to the place of supply rules for services being phased in from 1 January 2010 and the introduction of a requirement to complete ESLs for reverse charge services was issued on 22 December 2008. The deadline for comments on the draft legislation contained in the consultation paper is 13 February 2009. We will be holding consultation seminars in Central London on 2 and 6 February 2009 and intend to cover the issues arising from the changes set out in this Brief at those events. If you are interested in attending please email.