VAT News

EU-Proposals to simplify VAT for SME's

The EU has this week released a two-fold proposal designed to simplify the VAT system, specifically around reduced rating, and to ease the administrative burden and compliance costs of smaller businesses in respect of VAT.

Under the current EU VAT directive, reduced rates across the EU must be set at a minimum of 5%, and may only be applied to a fairly restricted list of goods and services. For years, campaigns have existed to make this system more flexible to enable the reduced rating of certain items, and the EU now proposes to introduce more flexibility for member states.

Existing reduced rates and derogations will expire upon the introduction of the definitive VAT regime (still being negotiated), and at this time new measures will be introduced. In summary, these are:

-Standard rates must remain at 15% or above

-Member states may introduce 2 reduced rates between 5% and 15%

-Member states will be permitted to implement one zero rate

-A further reduced rate between 0% and 5% may be implemented

In addition to the above, the restrictive list of goods and services to which the reduced rate may apply will be removed, and in its place will be a list of the goods and services to which a reduced rate cannot apply (items such as alcohol, tobacco, weapons, and gambling).

The second focus of the proposals is designed to make trading in other EU member states easier for smaller businesses. Currently, small businesses may benefit from generous thresholds in their state of establishment, but zero thresholds exist for non-established businesses, meaning higher compliance costs. The intended proposals will:

-Provide simplification measures (around invoicing, record keeping etc.) for businesses with a turnover not exceeding €2m

-Allow member states to apply thresholds to non-established businesses with a turnover not exceeding €100,000

Related articles

Why overlooking the VAT determination process is detrimental in the era of tax digitalisation

As tax moves into the digital world, hundreds of thousands of organisations across Europe will face substantial challenges when it comes to adhering to VAT.

Read more
Infringement Proceedings Brought Against Germany Over E-commerce VAT Rules

The European Commission decided to initiate formal infringement proceedings against Germany over section 22f & 25e of the German VAT Act.

Read more
HMRC Issue Letters on No-Deal Brexit Advice For UK Businesses Trading within the EU

HMRC letters to VAT-registered businesses trading with the EU explaining how to prepare for changes to customs, excise and VAT if the UK leaves the EU without a deal.

Read more