EU VAT Might Continue to Affect UK Companies: Experts Warn


EU (Parliament Politic Magazine) – According to Andy Gibbs, the head of group technical at TaxAssist Accountants, UK businesses should commence preparations now for the upcoming VAT regulations overhaul by the EU. Even though the UK is no longer an EU member, businesses aiming to continue trading with EU customers and suppliers must upgrade their invoicing and bookkeeping systems, as stated by Gibbs.

He cautioned that the VAT in the Digital Age (ViDA) proposals will introduce substantial alterations to tax compliance responsibilities, urging companies not to underestimate the implications. These changes involve implementing a real-time digital reporting system centered on e-invoicing, alongside fresh regulations applicable to the digital platform economy. Gibbs highlighted that companies embracing this chance to refine their systems will be able to capitalize on the data advantages arising from the digitization of indirect tax.

Detailed Proposals

The comprehensive proposals were introduced by the European Commission in December 2022, with the aim of enhancing tax system efficiency and countering fraud. These changes are scheduled to take effect between 2024 and 2028. The Commission asserted that Member States incurred a loss of €93 billion in VAT revenue during 2020, with conservative estimates indicating that a quarter of this loss could be directly attributed to VAT fraud.

Paolo Gentiloni, the European commissioner for the economy, remarked that EU countries are facing substantial losses annually due to VAT fraud, while businesses grapple with outdated VAT regulations.

The proposed set of measures encompasses a shift toward real-time digital reporting via e-invoicing for businesses conducting cross-border operations within the EU. Furthermore, updated VAT regulations will be introduced for passenger transport and short-term accommodation platforms, designed to simplify matters for smaller enterprises. Additionally, the EU will introduce a unified VAT registration process, enabling businesses selling to consumers in other Member States to register only once for VAT purposes.

Andy Gibbs from TaxAssist has already received inquiries from landlords who rent out holiday accommodations through digital platforms within an EU member state. Gibbs mentioned that these reforms are extensive and starting from 2025, landlords affected by them will have to include VAT in their EU-based holiday rentals, regardless of their own location.

Regulatory Changes

Gibbs also believes that acquainting themselves with the EU regulatory changes could serve as valuable preparation in case similar policies are implemented in the UK. He stated that it’s probable the UK government will observe the outcomes of the EU’s VAT in the Digital Age program and might adopt a similar approach in the future.

Positive aspects of these regulations were highlighted by Christiaan Van Der Valk, the vice president of strategy at Sovos, a software provider. He believes that the proposed expansion of the single VAT registration zone could streamline processes for non-EU exporters. This change would lessen the number of countries that UK exporters need to register for VAT, saving time, reducing administrative expenses, and improving compliance.

However, Van Der Valk noted that UK businesses must grasp the alterations related to electronic invoicing and reporting. For example, starting from 2024, PDF invoices won’t be considered electronic anymore, and there might be a prohibition on summary invoices by 2028 as well. He stressed that UK firms should deeply study these upcoming changes to ensure compliance, as non-compliance could endanger their operations within the EU.

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Supply Chains Across EU

George Williams, the international indirect tax director at Grant Thornton, advised UK firms to swiftly assess the overall structure of their businesses. He pointed out that the proposals from the European Commission would mainly affect companies relying on supply chains across the EU.

He highlighted that the European Commission’s suggestions would predominantly affect enterprises that depend on interconnected supply chains spanning the EU.

“Hence, UK enterprises ought to contemplate a thorough examination of their EU activities to gain deeper insights into their supply chains within this area and whether their business maintains any establishments there,” he expressed.

Upon ascertaining their level of exposure within the EU, Williams remarked that corporations should evaluate the potential repercussions on their operations well in advance of the proposed deadlines. “The alterations to existing systems or the introduction of novel technological solutions, likely necessary, might require a longer timeframe than initially anticipated.”

He also opines that businesses should consistently monitor the ViDA proposals in the upcoming months in case any modifications are introduced to either the policy’s stipulations or its designated timeframes.

Beth Malcolm

Beth Malcolm is Scottish based Journalist at Heriot-Watt University studying French and British Sign Language. She is originally from the north west of England but is living in Edinburgh to complete her studies.