New VAT Rules for Services

Since 1 January 2010 if a business buys services from another business based in another European Union state then they may need to charge themselves VAT. This is called the “Reverse charge”.

The company will charge itself, rather than the customer, VAT at 17.5% which it will then enter in Box 1 of its VAT Return. It also then enters the same figure in Box 4 of the Return thereby reclaiming it making the whole exercise VAT neutral.

Conversely if you sell services to EU business customers you won’t usually have to charge VAT, but you will need to report the transaction to HM Revenue and Customs within 14 days of the end of the VAT period in which the transaction occurs.

Businesses need to ensure that they are compliant with the new rules as failure to make such a report will incur a penalty for each transaction unreported.

For more information please contact Park Royal Accounting by emailing Howard Beaumont at services@parkroyal.org or calling 0203 110 2326.