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New EU wide VAT regulations come into force

It's not just the UK VAT rate restoration of 17.5% from 1 January 2010 that will have implications for UK business. Jan 1st also saw a new 'VAT Package' coming into force across the EU. The new package means that VAT for B2B services will now need to be paid in the country of consumption as opposed to the country where the supplier is located. For B2C services, VAT will continue to be paid in the suppliers Member State.

Whilst one of the main aims of the scheme is to provide a faster, more effective electronic procedure for businesses to reclaim the VAT that they pay in a Member State other than the one in which they are established, another important aspect of the regulation is to stop businesses relocating in an attempt to pay less VAT. It is also intended that the data supplied by companies will provide statistical information to various European tax collection authorities about trade and that this will assist with early identification of VAT fraud. 

Due to differing interpretations of the new rules and the real and present danger of double taxation the EU Commission has introduced a range of guidelines for suppliers on establishing the location and tax status of the customer, to help determine the rate of VAT that must be paid.

Not everyone is happy with the new system. Amongst criticisms expressed by various business representatives is that the tax collection agencies are in effect using businesses as a free way to collect important taxation statistics on their behalf. Another accusation levied at the new regulation is that it adds the weight of yet more administrative red tape to already over burdened British businesses. The Federation of Small Businesses has already urged the Government to look at this regulation and make sure that they are not 'gold-plating' the European requirements. The UK economy is in a precarious state at the moment and business according to the FSM should be focused on recovery, not even more unnecessary form filling.

They claim that small companies already spend an average of seven hours a week on paperwork. In order for them to avoid penalties of £15 a day for late submission of the new information required by Revenue & Customs those seven hours will only increase.


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