As we reach the end of the year, we are faced with the return of the 17.5% VAT rate. However, the Chartered Institute of Taxation (CioT) has issued a warning to all contractors and businesses that the VAT increase is not the only taxation change which will come into effect in 2010. The EU VAT package will also come into force on New Years Day and, according to CioT this will result in “big changes” to the taxation rules governing services provided across countries.

At present, for tax purposes, services are considered to be supplies wherever the supplier is based. However, from next year the services will be classed as having been supplied wherever the client’s customer is based.

The purpose of these changes is to put an end to businesses relocating with the sole aim of cutting their VAT bill.

Chairman of the CIOT’s VAT and indirect taxes sub-committee, Douglas Gordon said: “Any business which supplies or receives cross-border services needs to be ready for these changes. Most will be already have been contacted by their advisers but any that haven’t should seek advice straight away. The introduction of a general rule that the place of supply of services is where consumption takes place is sensible. In the process we have lost a number of areas of uncertainty, which will deliver significant benefits.

He concluded: “However, I fear that the changes will add to the administrative burden on many businesses. This is because the shift in the general rule means that national governments need statistical data on cross-border transactions in order to police them.”

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