Partner Article

Are UK businesses sleepwalking into the 2015 VAT changes?

On 1 January 2015 supplies of telecommunication, broadcast, media and content (‘e-services’) will become subject to VAT in the EU country of the private consumer.

As a result, businesses will need to observe local tax rules which could have a significant impact on margins and accounting processes.

Currently, EU based businesses apply VAT at the prescribed rate of the country where they are based. It is worth noting that VAT rates for electronic services vary significantly throughout the EU, from circa 3% in Luxembourg to 27% in Hungary.

Consequently, a number of larger businesses have based themselves in Luxembourg, in part to benefit from the low local VAT rate for such sales (e-books for example). However, from 2015, e-services will become liable to VAT in the country of the customer.

Such is the potential impact of the VAT rule changes that the Luxembourg Prime Minister has announced that the Luxembourg VAT standard rate of 15% will increase in 2015 to compensate for the potential loss of revenue. Failure to prepare adequately for the impact of 2015 could lead to a loss of income through an inappropriate pricing strategy, the potential for a harmful impact upon the customer’s ‘buying experience’, financial penalties and interest for non-compliance and/or late registration, and the potential to register for VAT in every EU country where an impacted business has customers.

Among the many challenges facing e-businesses in complying with the new VAT regulations will be to consider how best and most efficiently to collect and record data concerning their customers’ location, and in ensuring that IT systems and business infrastructure can adequately capture, record and declare that information.

Affected businesses will also have to consider the legal arrangements the business has with their suppliers, and their customers, to ensure that the responsibility for dealing with tax and compliance issues is clearly defined.

Although January 2015 could easily be dismissed as being too far in the future to warrant any concern, it’s better to be aware of, and plan for, these changes, rather than arrive in 2015 with eyes wide shut.

This was posted in Bdaily's Members' News section by Baker Tilly .