The new rules make
customers rather than suppliers VAT liable.
New measures that will
substantially change the existing VAT regime will come into effect
in the UK from 1 January 2010.
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A detailed discussion of the new
rules is outside the scope of this article. However, it is worth
focusing on two key points relating to cross-border leasing
transactions between VAT registered businesses, which will be
affected by the new regime.
These include changes to the place of supply
rules and new administrative requirements.
The current general rule for the place of
supply is that it is the jurisdiction of the supplier that governs
whether VAT is due.
Under the new rules, this will switch to the
jurisdiction of the recipient of the supply, who may find
themselves liable to account for VAT under their local rules.
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By GlobalDataWhere the asset that is leased is not a means
of transport, this particular change should not have much practical
impact because leasing of non-transport assets is already, under
current law, treated as supplied in the lessee’s jurisdiction (as
one of the exceptions to the general rule).
Where the asset is a means of transport,
however, and it is not a qualifying ship or aircraft (which will
continue to fall within a special zero-rated regime), the new rules
may have a substantial impact. For example, if a UK lessor has
trucks on a five-year lease to a French lessee, which uses those
trucks in France, under current law it would be UK VAT that is due
on the rentals.
From 1 January 2010, no UK VAT should be
applicable; instead, the French VAT rules would be relevant. The
position for transport assets is further complicated by a new
distinction between short and long-term leasing, which looks at the
jurisdiction in which the transport is put at the lessee’s disposal
– and the overlay of the existing effective use and enjoyment rules
that will continue to apply.
A further major change which will affect
transport and non-transport leases alike is the requirement, from 1
January 2010, for lessors, like other suppliers of services, to
file quarterly EC Sales Lists (ESLs or recapitulative statements)
with HM Revenue & Customs giving details of their customers’
VAT registration numbers and rentals charged.
ESLs will have to be filed within 14 days (for
paper) or 21 days (for electronic submissions) from the end of each
quarter.
UK lessors, especially in the transport
sector, will need to have evidence to hand to support their filing
position should HM Revenue & Customs query the lessee’s VAT
status.
For most leasing transactions
outside the transport sector, the new rules are likely to bring
with them no substantive change in VAT treatment, but greater
administrative hassle in the form of the new ESL filing
requirements. Still, all lessors and lessees, and especially those
in the transport sector, should take care to make sure they
understand the impact of the changes on their particular
circumstances ahead of 1 January 2010.
Eloise Walker is a tax partner at
Pinsent Masons LLP
