Electronically supplied services: Special scheme for non-EU Businesses

VAT Information Sheet 07/03
May 2003

This information sheet explains the special electronic registration and VAT accounting scheme for non-EU businesses which provide electronically supplied services to EU consumers and how it operates in the UK.

If you supply electronically supplied services you will also need to read the following VAT Information Sheets:

• 01/03 - Electronically supplied services and broadcasting services: New EU place of supply rules
• 04/03 - Electronically supplied services: A guide to interpretation
• 05/03 - Electronically supplied services: Evidence of customer location and status

A further VAT Information Sheet - Electronically supplied services: supplementary information on the Special Scheme for non-EU businesses will be published in July 2003.

1. Introduction

What is this information sheet about?

This information sheet explains the new Special Scheme for non-EU businesses which supply electronically supplied services to EU consumers (that is, private individuals and non-business organisations) and how it operates in the UK. The Special Scheme provides an optional, simplified means of registering and accounting electronically for EU VAT with effect from 1 July 2003, following implementation of the VAT on E-Commerce Directive.

Law

Section 3A and Schedule 3B of the VAT Act 1994 provide for the Special Scheme. They implement Article 26c of the EC Sixth Directive, added by Article 3 of the VAT on E-Commerce Directive (Co.Dir.2002/38/EC).

Why is this scheme being introduced?

This new scheme is being introduced alongside the changes to the EU place of supply rules for electronically supplied services, which also take effect from 1 July 2003. From that date, these services, when supplied by non-EU businesses to EU consumers, will be subject to VAT in the Member State where the customer belongs. This means that non-EU businesses would be required, under the normal rules, to register separately and account for VAT in each and every Member State in which they make those supplies. For example, a Canadian business with customers in the UK, France, Germany and Holland would have to register in, and submit declarations to each of those Member States.

Instead, the Special Scheme offers eligible non-EU businesses the option of registering electronically in a single Member State of their choice and accounting for VAT on their sales of electronically supplied services to all EU consumers on a single quarterly electronic VAT declaration which provides details of VAT due in each Member State. This is submitted with payment to the tax administration in the Member State of registration which then distributes the VAT to the Member States where the services are consumed.

Example: A USA business registers for the Special Scheme in the UK. Its customers are located in the UK, Italy and Spain. The USA business charges UK VAT to its UK customers, Italian VAT to its Italian customers and Spanish VAT to its Spanish customers. The business enters the VAT for each country on the appropriate line of the electronic declaration. It sends the declaration electronically with payment to HM Customs and Excise, who retain the UK VAT and pass on the Italian VAT to the Italian authorities and the Spanish VAT to the Spanish authorities.

2. Businesses eligible to use the Special Scheme

Who may use the Special Scheme?

You are eligible to use the Special Scheme if:

• you supply electronically supplied services to consumers (private individuals and non-business organisations) belonging in the EU
• you are not established within the EU
• you are not registered for VAT under the normal rules in any Member State

What are electronically supplied services?

Full details of what is meant by an 'electronically supplied service' are available in VAT Information Sheet 04/03 - Electronically supplied services: A guide to interpretation.

Can I use the Special Scheme if I make supplies to business customers as well as private consumers in the EU?

Yes, subject to meeting the other conditions set out in paragraph 2.1. However, you are not required to charge and account for VAT on electronically supplied services supplied to EU businesses [1] because your customer accounts for any VAT due. VAT Information Sheet 01/03 Electronically supplied services and broadcasting services: New EU place of supply rules refers

3. Registration for the Special Scheme

When can I register for the Special Scheme in the UK?

You will be able to register electronically in the UK with effect from the beginning of June 2003.

How do I register for the Special Scheme in the UK?

You may register in the UK for the Special Scheme at the dedicated website http://secure.hmce.gov.uk/ecom/voes (operational from the beginning of June 2003). This is a secure site which automatically guides you through an electronic registration process. This will include selecting a user name and password to identify yourself for the purposes of completing and submitting declarations electronically (see paragraph 4.1).

Remember: Subject to the conditions in paragraph 2.1, you can elect to register for the Special Scheme in a Member State of your choice, but you can only register in that one Member State.

What information must I provide to register?

You will only have to provide the following limited information to register:

• business name
• postal address
• electronic addresses including websites
• national tax number (where applicable)
• a statement that you are not registered for VAT purposes within the EU
• the date on which you began, or intend to begin, making supplies of electronically supplied services to EU consumers

We will also ask you to provide a contact name and telephone number.

When will I receive a VAT identification number?

We will normally send your VAT identification number by e-mail within five working days of us receiving your completed electronic registration request.

Identification numbers for the Special Scheme have their own unique format beginning with the prefix 'EU', followed by a nine digit number. These are different from VAT registration numbers issued under the normal rules.

Must a business be making supplies before registering?

Subject to the other conditions, you are entitled to register for the Special Scheme even if you are not actually making supplies of electronically supplied services at the time, but intend to do so at a later stage. You will need to complete 'nil' VAT declarations for the period between the date you are registered until the time you begin to make supplies (see paragraph 4.1). However, you must advise us if your intention to make supplies ceases (see paragraphs 3.7 and 3.8).

What if I am already registered for VAT in the EU under the normal rules but want to apply for the Special Scheme?

If you are required to be registered for VAT in the EU under the normal rules, for example, because you supply goods or services other than electronically supplied services, you are not eligible for the Special Scheme. You are required to account for VAT on electronically supplied services to EU consumers under the normal rules.

However, if, prior to 1 July 2003, you are required to be registered in the EU, but from that date will be supplying only electronically supplied services to EU consumers, you may apply for the Special Scheme in the UK provided you cancel your VAT registration under the normal rules in the member State concerned.

What is the procedure if my business's circumstances change?

Once you are registered for the Special Scheme, you must notify us, using the dedicated website, if:

• there is any change in your business details as at paragraph 3.3 above
• you cease to make, or cease to have the intention of making, electronically supplied services to EU consumers
• you cease to be eligible for the scheme (for example, you begin to supply goods in the EU and are consequently liable to register under the normal rules)

You must advise us within 30 days of the date of the changes, or of the date when your intention to make supplies ceased.

In what circumstances must I apply to cancel my registration under the Special Scheme?

You must apply to cancel your registration under the Special Scheme if at any time you cease to be eligible for it; for example, if you cease to supply electronically supplied services to EU consumers or if you establish your business within the EU.

We can also cancel your registration in certain circumstances if you do not meet the conditions of the Special Scheme, for example, because we discover you make supplies other than electronically supplied services in the EU and are therefore required to register under the normal rules.

What if I decide to switch from registration under the normal rules to the Special Scheme at a later date?

If, from 1 July 2003, you are required to be registered in the EU solely because you are supplying electronically supplied services to EU consumers, you may decide to register under the normal rules. For example, you might initially be making supplies of electronically supplied services to consumers in a single member State only. You may subsequently wish to register under the Special Scheme, for example, because you expand your market to consumers in other Member States.

In these circumstances, you may apply to be registered for the Special Scheme in the UK provided you cancel your registration under the normal rules with the Member State concerned.

4. Accounting and records

What is the procedure for submitting declarations and payments?

Electronic declarations are due for each calendar quarter (30 September, 31 December, 31 March and 30 June) and should be submitted within 20 days after the end of the quarter to which it relates. For example, a declaration for the quarter ending 30 September should be submitted with full payment of the tax due, by 20 October. You must also submit 'nil' declarations.

You complete the declaration by logging on to the dedicated website using your VAT identification number, user name and password to ensure security.

What details will be required on the VAT declaration?

For each member State in which your business has supplied electronically supplied services you must state on the declaration:

• the total value of all supplies in the period excluding any VAT
• the VAT rate which applies and
• the total amount of VAT payable.

You must also show the total amount of VAT payable in all Member States.

Can I recover VAT on purchases under the Special Scheme?

No. The Special Scheme provides only for payment of the VAT due on sales to your EU customers without any deductions of EU VAT incurred on purchases. However, you may reclaim any VAT that you have paid on goods and services used for the purpose of your taxable activities falling under the Special Scheme from the Member State where that VAT was paid, under the terms of the EC 13th Directive (see section 5).

How do I pay electronically?

You will need to arrange with your bank to make electronic payment to Customs' Bank Account at the same time you submit the declaration. We will advise businesses of the bank account details in a further VAT Information Sheet - Electronically supplied services: Supplementary information on the Special Scheme for non-EU businesses (to be published in July 2003) and on the dedicated website.

In what currency must returns and payments be made?

Businesses registered for the Special Scheme in the UK will be required to submit declarations and payments in sterling. Any conversions from other currencies into sterling are to be made using the exchange rates published by the European Central Bank:

• for the last day of the reporting period to which the declaration relates
• if no such rate is published for that day, for the next day for which such a rate is published

We are looking into ways of assisting businesses in this process. Further information will be published in VAT Information Sheet - Electronically supplied services: Supplementary information on the Special Scheme for non-EU businesses (to be published in July 2003) and on the dedicated website.

How will I know that you have received the declaration?

We will send you an online acknowledgment confirming that we have received your declaration. If you do not immediately receive this, you should contact our Customer Services Team by email at voes@hmce.gsi.gov.uk. This acknowledgment also provides a unique reference number for each declaration you submit. You should refer to this number if you need to contact us with a query about a declaration.

What is the procedure for correcting errors?

We are currently in the process of providing detailed guidance and further information will be published in VAT Information Sheet - Electronically supplied services: Supplementary information on the Special Scheme for non-EU businesses (to be published in July 2003) and on the dedicated website.

What records should I maintain?

If you are registered for the Special Scheme you should maintain records of your transactions in sufficient detail to enable the tax administrations in your customers' member States to determine that the VAT declarations and payments you make are correct. These records include normal commercial data held for each transaction, for example, transaction number, date, type (credit or debit), customer name and location, currency and values including VAT.

These records should be made available electronically on request to either the tax administration where:

• you are registered for the Special Scheme
• where your customers belong

How long must business records be retained?

Businesses must retain records relating to supplies made under the Special Scheme for a period of ten years.

Invoices

It is common practice for businesses supplying electronically supplied services to issue electronically an invoice or similar document which confirms the details of the sale. There are no special rules for issuing VAT invoices under the Special Scheme and consequently the normal rules apply. In the UK you are not required to issue VAT invoices for such supplies because your customers are not in business for the purposes of the Special Scheme and cannot deduct VAT on their purchases.

5. Refunds of VAT on purchases

How do I make a claim under the 13th Directive for a refund of VAT paid in the UK?

For VAT incurred in the U K, you must make your claim on a form VAT 65A which is available either from HM Customs and Excise, VAT Overseas Repayment Unit, Custom House, PO Box 34, Londonderry BT 48 7AE, Northern Ireland or from the HM Customs and Excise internet site www.hmce.gov.uk. All claims must be accompanied by original invoices, vouchers or receipts showing the VAT you have paid. When you make your first claim you must also include a certificate from the official authority in your own country showing that you are registered for business purposes in that country.

Full details of the general requirements are in Notice 723: Refunds of VAT in the European Community for EC and non-EC businesses which is available from the HM Customs and Excise internet site.

Are there any additional requirements for claimants registered under the Special Scheme?

Yes. In section 9a of the VAT 65A you should state: 'ESS Special Scheme' and quote your Special Scheme identification number.

Can I also reclaim VAT on business expenditure which is not related to the Special Scheme?

You can reclaim VAT in accordance with the usual procedures as laid down in Notice 723. However, you should identify clearly in section 9a that the claim is for ESS and other expenditure and also indicate in section 10 which expenditure relates to the Special Scheme.

What about recovering VAT paid in other member States of the EU?

You must contact the responsible authorities in the other member States for information on how to reclaim VAT incurred in those countries. Details of the authorities are given in Notice 723.

Who can I contact for further information?

If you have a query for which you haven’t been able to find the answer within this VAT Information Sheet, please contact our National Advice service on Tel 0845 010 9000 (+44 208 929 0152 for International callers). The National Advice Service is available from 8.00 am to 8.00 pm (GMT), Monday to Friday, and will be able to answer both general queries and deal with enquiries relating to the Special Scheme.

If you have hearing difficulties, please ring the Textphone service on 0845 0000200.

Alternatively, international enquirers may email us at voes@hmce.gsi.gov.uk (operational from 19 May 2003).

[1] Including non-business organisations, such as government department, receiving supplies for business purposes

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