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Finance Act 2014

Section 103: Value Added Tax: Special Schemes

Summary

1.This section introduces Schedule 18 which provides for the implementation of the optional special accounting schemes for persons making supplies of broadcasting, telecommunication or electronically supplied services (BTE) to non-business customers in the EU.

2.The Schedule implements the provisions for the schemes set out in Council Directive 2008/8/EC and a Transposition Note setting out how the Government will transpose into UK law the main elements of this Directive is annexed to these Explanatory Notes.

Details of the Schedule

Part 1

3.Paragraph 1 inserts the new Schedule 3BA into the VAT Act 1994, which contains the provisions establishing the special accounting scheme for persons established in the Member States (MS) supplying BTE services to non-business customers belonging in other MSs, to be known as the Union scheme.

4.New Schedule 3BA Part 1 gives an overview and explains the meaning of scheme services.

5.New Schedule 3BA Part 2 provides for who may register in the UK to use the Union scheme, how they may apply to register, the obligations to notify any changes to the registration, and when a registration may be cancelled.

6.New Schedule 3BA Part 3 sets out the responsibility of a person registered to use the Union Scheme in the UK to submit returns to the Commissioners for the VAT due in the consumers’ MS and to pay the VAT due. It specifies when the return and payment are to be made and the way they are to be submitted. It also places an obligation upon the registered business to produce the relevant business records to the Commissioners in electronic format upon request.

7.New Schedule 3BA Part 4 places obligations upon persons registered for another MS’s equivalent to the Union Scheme in respect of their UK supplies. It sets out that a person registered for such a scheme is not liable to register in the UK on the basis of the BTE supplies made to UK consumers. It permits the Commissioners to deregister a person who has registered in the UK for such supplies but wishes to use the non-UK scheme provided by another MS. It also imposes a record keeping requirement and sets out the rules for amendments, error corrections, late returns and charges to interest applying to declarations of UK VAT made in a non-UK scheme return.

8.New Schedule 3BA Part 5 sets out the rights of appeal of those persons registered to use the Union Scheme and those declaring UK VAT through a non-UK scheme return.

9.New Schedule 3BA Part 6 details the interpretive provisions.

Part 2

10.Paragraphs 3 to 7 amend the special scheme for supplies of electronic services detailed in the VAT Act 1994 Schedule 3B Part 2 to include supplies of telecommunications and broadcasting services from 1 January 2015. This special scheme will become known as the non-Union scheme and provides an accounting scheme for suppliers of BTE services not established within the EU.

11.Paragraph 8 inserts the new Part 3 of Schedule 3B which contains the provisions for scheme returns that are late or incomplete or need amendment.

12.Paragraphs 9 & 10 include interpretive and consequential amendments to       Schedule 3B.

Part 3

13.Paragraphs 11 to 18 introduce amendments to the VAT Act 1994 in section 3A, section 76, section 77, section 80, section 84(6) and Paragraph 12 of Schedule 1A to include the special schemes.

14.Paragraph 19 amends the Table in paragraph 1 of Schedule 24 to the Finance Act 2007 and inserts new sub-paragraphs 4A-C to include the special scheme returns into the penalty regime for errors.

15.Paragraph 20 includes special scheme liabilities within the provision for suspension of penalties during an agreement for deferred payment, and in Schedule 53 to the Finance Act 2009 in relation to interest on amounts payable to HMRC.

16.Paragraphs 21 and 22 include the special scheme returns and payments into Schedules 10 and 11 to Finance (No 3) Act 2010 which prospectively amends Schedules 55 and 56 to Finance Act 2009 to provide for penalties for failure to make returns and payments.

Part 4

17.Paragraphs 23 to 25 make provision for commencement of the special schemes and for when persons may begin to register.

Background Note

18.These schemes, known collectively as the Mini-One Stop Shop or MOSS, are being introduced as part of the final stage of the 2008 European agreement on changes to the VAT place of supply of services rules (known as the VAT Package) and were announced at Budget 2013. The supply of BTE services to non-business customers is currently taxable where the supplier is located (save for supplies of e-services made by those outside the EU to such customers in the EU). This will change on 1 January 2015 to where the customer belongs.

19.This rule change may increase administration costs of suppliers of BTE services as they are liable to register for VAT in every Member State where they have non-business customers. To mitigate such costs the MOSS IT system will be implemented across the EU from 1 January 2015. MOSS is formed of two parts: the Union Scheme for those that have an establishment in the EU; and the Non Union scheme for those that do not have such an establishment. This Schedule enacts those elements of EU law which are not directly applicable to set up the legal framework for the special schemes.

20.The Union Scheme gives EU BTE suppliers the option to register and to account to the Member State where they are established for the VAT on all their BTE supplies to customers in the other Member States on one MOSS VAT return. If businesses do not register for MOSS they must register in each Member State in which they supply a non-business customer with BTE services.

21.The Non Union Scheme allows suppliers of BTE services which are not established in the EU to register in one Member State of their choosing to account for the VAT on all their BTE supplies within the EU on one MOSS VAT return. The VAT on Electronic Services (VoES) scheme currently allows this treatment for non EU suppliers of electronic services; MOSS will extend this to broadcasting and telecommunication services. Those already registered for the VoES scheme, may transfer over to the Non-Union scheme and continue to get the benefit of this simplification measure.

22.The provisions relating to the correction of declarations made under either scheme seek to apply the rules that would be applicable if the schemes did not exist so that scheme users are subject to the same rights and responsibilities as those who choose not to use the schemes.

Transposition note

With effect from 1 Jan 2015 Council Directive 2008/8/EC Article 5 amends Directive 2006/112/EC (PVD) regarding the place of supply of telecommunications, broadcasting and electronically supplied services (BTE) to non-taxable persons and the optional special accounting scheme for suppliers based outside the Member States (the non-Union scheme) and inserts the special scheme for those based within the EU but not in the same member state as their customers (the Union scheme).

Reference should also be made to Council Regulation (EU) No 967/2012 amending Implementing Regulation (EU) No 282/2011, section 2 of Council Regulation (EU) No 904/2010 and Commission Implementing Regulation (EU) No 815/2012 which contain directly applicable provisions.

The changes to the VAT Act 1994 and subordinate legislation do not go beyond what is necessary to implement the Directive, including making consequential changes to domestic legislation to ensure its coherence in the area to which they apply.

Unless otherwise specified the implementation is made by existing provision in or amendment to the VAT Act 1994.*

PVD Amended ArticleObjectiveImplementation*
58Moves the place of supply to where the non-taxable person is established, has his permanent address or usually resides.

SI 2014/***

The Value Added Tax (Place of Supply of Services) (Exceptions Relating to Supplies Not Made to Relevant Business Person) Order 2014 and section 104 of the    Finance Act 2014.

204(1) 3rd paragraphPrevents the use of a tax representative by persons not established in the EU using the special scheme for supplies of BTE services.Sch 3B (Electronic, Telecommunications and Broadcasting services: non-Union scheme) para 19.
358Defines and amends the services covered by the non-Union scheme, the VAT return and the Member State of consumption (MSC).Sch 3B para 3.
358aDefines a taxable person not established in the Community (NETP) and the Member State of identification (MSI) for the purposes of the non-Union scheme.Sch 3B para 2.
359Obliges Member States to allow a NETP making the BTE supplies to register for the special scheme.Sch 3B para 4 (1).
360Obliges the NETP to electronically inform the MSI when it starts or ceases making BTE supplies or otherwise ceases to be eligible for the non-Union scheme.Sch 3B para 4(5) and para 7(3).
361Defines the information the NETP must provide to the MSI on commencement of BTE supplies to non-taxable persons in the Community and obliges them to inform the MSI of any changes in that information.Sch 3B para 4(3) HMRC also propose to make regulations regarding registration requests under Sch 3B para 4(5).
362Obliges the MSI to allocate a unique identification number to the NETP.Sch 3B para 6.
363Obliges the MSI to remove the NETP from their VAT register where the NETP has ceased (or can be assumed to have ceased) making BTE supplies; where the conditions for the scheme are no longer met or where the NETP has persistently failed to comply with the special scheme rules.Sch 3B para 8(1).
364Requires the NETP to electronically submit a declaration of BTE supplies (whether or not any have been made) to the MSI on a calendar quarter basis.Sch 3B para 11 and see Article 4 of Commission Implementing Regulation (EU) No 815/2012.
365Requires the VAT return to include the NETP’s identification number, to identify value, VAT, rate of VAT applied per MSC.See Article 4 of Commission Implementing Regulation (EU) No 815/2012.
366(1)Permits VAT returns to be denominated in local currencies where the Euro has not been adopted and specifies the date upon which any currency conversion must take place.Sch 3B para 12.
367Requires the NETP to make payment of the VAT due with reference to the relevant return and by the deadline for the submission of the return, payment being made to the bank account specified by the MSI.Sch 3B para 13.
368Forbids deduction of input tax through the special scheme. Any refund of VAT incurred on expenses within the EU must be made through the refund system. Certain restrictions within the refund scheme are disapplied for NETPs using the special scheme.Sch 3B para 10(6) & para 22.
369(1)Requires the NETP to keep sufficient records of their BTE supplies for the MSC to verify the correctness of the return.Sch 3B para 14.
369aDefines the MSI and the taxable persons eligible to use the Union Scheme, dependent upon where their business is established or, if there is no such establishment, from any fixed establishment located within the EU. If the taxable person has a choice they shall notify the MSI and be bound by that choice for two years.Sch 3BA (Electronic, telecommunication and broadcasting services: Union scheme) para 4(1)(b) & (c).
369bRequires Member States to permit a taxable person not established in the MSC to use the Union scheme for BTE supplies to non-taxable persons belonging in the EU.Sch 3BA para 5 (1).
369cRequires the taxable person to notify the MSI when BTE supplies to MSCs start, cease or the activity changes so as to be no longer eligible for the scheme and that such information be submitted electronically.Sch 3BA para 6.
369dRequires the scheme user to be registered in the MSI only and that the MSI may use their normal VAT register.Sch 3BA para 3 & 5. HMRC also propose to make regulations regarding registration requests using the powers in Sch 3BA para 5(5).
369eRequires the MSI to exclude the taxable person from the special scheme where BTE supplies are, or may assumed to be, no longer made, the taxable person is no longer eligible or the scheme conditions are persistently not complied with.Sch 3BA para 7.
369fRequires the scheme user to electronically submit a VAT return on a calendar quarter basis to the MSI whether or not any BTE supplies have been made. The return must be submitted within 20 days of the quarter end.Sch 3BA para 9; para 10(3)(a).
369g (1st paragraph)The VAT return is required to show the identification number; the value, VAT and VAT rate per MSC.Sch 3BA para 10(3)(b). See also Article 4 of Commission Implementing Regulation (EU) No 815/2012.
369g (2nd paragraph)Where a taxable person has one or more fixed establishments outside the MSI from which BTE supplies are made, the VAT return must also show the information in the 1st paragraph for each MS in which there is an establishment, with reference to the local VAT number and broken down by MSC.

Sch 3BA para 10(3)(b)

See also Article 4 of Commission Implementing Regulation (EU) No 815/2012.

369hWhere the MSI has not adopted the Euro the VAT return can be made out in the local currency. Any conversions required are to be made on the last day of the tax period using the rate published by the ECB.Sch 3BA para 10(2).
369iRequires the scheme user to make payment of the total VAT due, referring to the relevant VAT return, by the due date for the return and to a bank account specified by the MSI and in the currency specified where the Euro has not been adopted.Sch3BA para 10(2) & para 11.
369j (1st paragraph)The scheme user may not deduct VAT incurred in making BTE supplies through the special scheme but may use the special refund scheme.Sch 3BA para 8(3) and regulations to be made under section 39 of the VAT Act 1994 in reliance on paragraph 19 of Sch 3BA.
369j (2nd paragraph)If the scheme user is registered in the MSC for other taxable activities he may use the VAT return to recover VAT incurred in making BTE supplies in that MSC.Sections 24-26 of the VAT Act 1994.
369kThe scheme user must keep sufficient records of the BTE supplies made to allow the MSC to verify the figures declared on the VAT return. These records must be kept for a period of 10 years and, upon request, made available electronically to the MSI or MSC.Sch 3BA para 12 and para 31.

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Explanatory Notes

Text created by the government department responsible for the subject matter of the Act to explain what the Act sets out to achieve and to make the Act accessible to readers who are not legally qualified. Explanatory Notes were introduced in 1999 and accompany all Public Acts except Appropriation, Consolidated Fund, Finance and Consolidation Acts.

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