EU VAT changes could still impact UK firms, experts warn

UK businesses must start preparing now for the EU’s upcoming overhaul of VAT regulations, according to Andy Gibbs, head of group technical at TaxAssist Accountants.

“Although the UK is no longer a member of the EU, businesses will have to update their invoicing and bookkeeping systems if they wish to continue trading with EU customers and vendors,” he said.

Gibbs warned the VAT in the Digital Age (ViDA) proposals would see “significant changes” to tax compliance obligations and urged firms not to overlook the implications.

These include bringing in a real time digital reporting system that’s based on e-invoicing, along with new rules for the digital platform economy.

“Businesses that embrace this opportunity to enhance their systems will be able to leverage data opportunities that the digitalisation of indirect tax will provide,” he said.

Detailed proposals

The European Commission unveiled the reforms in December 2022 to make the tax system more efficient and help combat fraud. They are due to come into force between 2024 and 2028.

It claimed Member States lost €93bn in VAT revenues during 2020, with conservative estimates suggesting a quarter could be directly linked to VAT fraud.

Paolo Gentiloni, European commissioner for economy, said: “EU countries are losing billions every year to VAT fraud, while businesses struggle to comply with outdated VAT rules.”

The proposed package of measures includes a move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU.

There will also be updated VAT rules for passenger transport and short-term accommodation platforms that should make life easier for smaller firms.

In addition, a single VAT registration will be introduced across the EU. This will allow businesses selling to consumers in other Member States to register only once for VAT purposes.

TaxAssist’s Andy Gibbs has already had enquiries from landlord clients that let out holiday accommodation on digital platforms, located within an EU member state.

“These reforms are wide ranging,” he said. “From 2025, impacted landlords will need to account for VAT on their EU based holiday lets, regardless of where the landlord is based.”

Gibbs also believes getting to grips with the EU regulatory overhaul may also be useful preparation should similar policies be introduced in the UK.

“It’s likely the UK government will monitor the success of the EU’s VAT in the Digital Age programme and could take us down a similar path in the future,” he said.

Regulatory positives

However, the proposals aren’t necessarily bad news for UK firms, according to Christiaan Van Der Valk, vice president of strategy at software provider Sovos.

In fact, he believes the proposed extension of the single VAT registration zone could actually make life easier for non-EU exporters.

“These changes will reduce the number of countries a UK based exporter will need to register in for VAT which will be a massive time saver, reduce admin costs and make compliance easier,” he said.

However, he acknowledged that they required UK businesses to understand the changes around electronic invoicing and reporting. For instance, PDF invoices will no longer be considered electronic from 2024, and ViDA may also outlaw summary invoices from 2028.

UK firms must look in-depth at the upcoming changes and ensure they’re compliant or risk jeopardising their businesses in the EU, Van Der Valk argues.

“If a company’s in-house resources to monitor these developments and existing tech capabilities are not up to scratch, changes should be made in order to remain compliant and avoid penalties,” he said.

According to George Williams, international indirect tax director at Grant Thornton, UK firms need to analyse the broad structure of their businesses as a matter of urgency.

He pointed out that the European Commission’s proposals would primarily impact businesses that rely on supply chains across the EU.

“UK businesses should therefore consider reviewing their EU operations to better understand their supply chains within this region and whether the business has any establishments there,” he said.

Once the extent of their EU exposure is known, Williams said, companies must assess the likely impact on their operations well in advance of the proposed deadlines.

“The changes to current systems or the implementation of new technology solutions that may be required will likely take longer than anticipated.”

He also believes they must continue monitoring the ViDA proposals over the coming months in case any changes are made to the either the policy’s terms or timescales.

“As with previous EU VAT reforms, it is possible that the proposed deadlines may be delayed given that the proposals need approval from all Member States.”

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