VAT change may increase costs for UK business

A change in European Union VAT rules for business-to-business services will create administrative headaches for UK companies and could increase the cost of using low-cost administrative services from countries such as India, experts have warned.

VAT is normally charged where the supplier is based. However, there are exceptions to the rule, such as consultancy and advertising services, in which a customer will pay VAT for a business service based on their country’s tax rate.

Under the new rules, which come into force on 1 January next year, the VAT charge will be paid by the customer of a business service in the country where the customer is established.

Companies will have to complete a quarterly ‘EC sales list’ form, which must show the value of supplies to each customer along with the customer’s VAT number.

‘Tax authorities are going to be a lot tougher on [EC sales list forms] in the future,’ said Stephen Coleclough, VAT partner at PricewaterhouseCoopers.

Baker Tilly said the EU VAT change might increase costs for UK financial companies that buy administrative and clerical services from offshore centres such as India.

In a statement, HM Revenue & Customs said that it had consulted extensively with industry, including the finance and insurance sectors, on the possible affects of the changes for VAT charges on business-to-business services.

‘While some businesses may incur VAT on such services which they are unable to recover in full, those sectors have not indicated that the additional cost will be significant,’ HMRC said.