‘The digital age’ is a phrase that we’re all too familiar with in 2023, as countless systems become digitalised. UK business owners are no strangers to digital tax processes ever since the government began rolling out their Making Tax Digital for VAT scheme in 2019 – and now the EU is following suit.
In 2020 alone EU countries lost up to €93bn in uncollected VAT payments, so it’s hardly surprising that a new, more efficient system is set to be enforced. In December 2022, the European Commission (EC) published its VAT in the Digital Age reforms (ViDA), outlining a series of VAT measures set to streamline the system, close the VAT gap and facilitate the transition further into the digital age.
Although the UK is no longer part of the EU, the ViDA reforms will affect UK businesses that trade with the EU. In this week’s Tax Tuesday, we discuss how UK business owners might be impacted and how to prepare for the upcoming changes.
What is included in the ViDA reform?
When understanding the aspects of the ViDA reforms, it’s helpful to see it as built upon three main pillars:
- e-invoicing and digital reporting
- the single VAT return for trading across the EU; and
- the platform economy.
e-invoicing and digital reporting
This is the exchange between a supplier and a buyer of an invoice which is sent and received in a specific format to allow for automatic electronic processing. The deadline for mandatory e-invoicing and digital reporting for intra-EU transactions is 2028. It’s thought that these systems will provide governments with increased insight into businesses, making it easier to identify non-compliance. e-invoicing isn’t currently mandatory for UK business-to-business (B2B) payments, but business owners do need to choose between paper or electronic and cannot use both.
e-invoicing reforms impact both the supplier and customer, meaning that non-EU businesses will also be required to use e-invoicing for their EU clients. If you haven’t already, it may be advantageous to switch to e-invoicing to allow for continuity between EU and non-EU customers.
The single VAT return for trading across the EU
To reduce the VAT compliance cost and administrative burden of cross border EU trade, the reverse charge rule and One Stop Shop will be extended, whilst new rules for the transfer of own goods will be introduced. Each of these changes will be in effect from 1st January 2025.
The reverse charge rule will be mandatory for the supply of goods and services for all B2B supplies where the supplier is not established in the Member State in which the VAT is due; and the purchaser is VAT registered in the latter Member State. This could impact UK businesses if they provide B2B goods or services to a client in an EU member state.
The platform economy
There will be new deemed supplier rules applied to the VAT treatment of short-term accommodation rentals and passenger transport sold via a digital platform. This is due to an EC report which found that up to 70% of underlying suppliers using a digital platform were not VAT registered.
The EU rules will apply where UK businesses arrange the sales of accommodation or transport in the EU, so it is important to be prepared for these changes from 1st January 2025.
UK business owners trading with the EU should consider the following:
- Review your EU profile and operations to understand how these interact with the ViDA proposals.
- Review the upcoming changes closely to try and map their impact onto your business.
- Keep a lookout for any changes and updates to the proposals, particularly deadlines or implementation details.
We understand that this is a complex and often confusing topic. If you would like to seek further advice, please do not hesitate to get in touch with us at firstname.lastname@example.org.