Information relating to cross-border supplies of services to taxable recipients

Question proposed, That the clause stand part of the Bill.

Let me comment in passing on the Minister’s self-indulgent remark about HMRC being congratulated on being open and pragmatic. I would have hoped that it should not be noteworthy that HMRC is open and pragmatic. It sounded as though that was the exception  rather than the norm. I shall leave that thought hanging in the Minister’s mind for the time being.

I said in my brief remarks on clause 75 that I would return to the European sales list, which is a requirement for companies to make a periodic report of services supplied to other businesses in EU member states. The following information should be included in the EC sales list: the VAT registration number of the business to which services were supplied, and the total value, excluding VAT, of such supplies.

Two issues have been flagged to me, one of which has already been dealt with. That is the point that my hon. Friend the Member for Henley made about interpretation.

My hon. Friend the Member for Henley is also on the Equality Bill, which is why he zips in and out of this Committee. He is a very important individual.

Clearly, not only the Exchequer Secretary is in transitional arrangements. My hon. Friend the Member for Henley is so assiduous in his parliamentary duties that he feels that serving on one Committee is simply not enough; he must have two on the go at any point in time.

The issue that has been raised is whether the treatment of supplies is exactly the same in each member state. There is an obligation on the supplier to know what the treatment of supplies would be in the other member states, for the purposes of complying with the European sales list. The Minister went some way towards reassuring the Committee on that point by talking about the pace of implementation and the fact that the implementation of this measure will be tighter than we are normally used to with the implementation of directives. If there is any additional information that he can give on that subject, that would be helpful.

The Minister, in his response to my question, referred to the cost of changes in accounting systems. One of the issues that has been raised in that regard is that at present most accounting systems cannot cope with producing the European sales list. That is a concern, because of course the clause relates to the new harsher penalty regime and to clause 92, which deals with the obligations of senior accounting officers. There is concern that although the intention may be that businesses should comply with the measure, the systems they have in place may not be appropriate to comfortably provide accuracy of tax accounting. As the Government consider the measure, it is important that they ensure that businesses have the right IT support for the European sales lists, so that they are not subject to penalty under clause 92 or the other tougher penalties being introduced in that part of the Bill.

At present, VAT-registered businesses that supply or sell goods to other member states file a declaration known as an EC sales list with HMRC, to notify HMRC that a cross-border transaction has occurred but no VAT has been charged. The sales list records the member state of destination, the customer’s VAT registration number and the value of the goods supplied. HMRC forwards that information to the customer’s tax authority,  so that it can cross-check that the customer has entered the purchase or acquisition in their records and will account for the VAT. Clause 77 ensures that HMRC can introduce equivalent regulations for cross-border supplies of services. The alteration is necessary because of the change that is being made with effect from 1 January 2010, which we have discussed.

In future, therefore, VAT will be paid and recovered, subject to any partial exemption restriction on most cross-border services by the business customer on their VAT return, similar to the way that VAT is currently accounted for on cross-border supplies of goods. Conceptually, there is nothing very new, but the extension to services is new. Unless the current sales list regime for goods is extended to services, there is a risk that EU tax authorities will be unaware of cross-border supplies of services and, as a result, they may lose significant amounts of VAT. This is an important provision to monitor compliance and to help in the fight against VAT fraud.

Secondary legislation will be laid later this year, with an effective date of 1 January 2010, setting out in detail the new reporting requirements for EC sales lists for goods and services. I have provided a draft for the Committee. The changes, along with those in clause 75, were consulted on before the Budget, and a summary of responses was published on Budget day. Businesses have raised concerns about the practical implementation of making the changes by 1 January 2010, some of which were echoed today. HMRC has established a joint Government-business EC sales list working group; I hope that the Committee agree that that is an open and pragmatic thing to do. The group will discuss the issue and identify ways of keeping the administrative burden to a minimum. The changes ensure compliance with the new rules contained in clause 75.

The hon. Member for Fareham pressed me a little further about consistency in rules, along the same lines as the hon. Member for Henley when he was with us. As I said earlier, I am aware that there have been business concerns about the potential for different interpretations—in particular, the danger of double taxation. It is conceivable that people could find themselves paying VAT in two countries if the measure does not work as smoothly as it should, so we have been talking to the Commission to clarify areas where there could be difficulties, and we will update the guidance as soon as those issues have been resolved.

I can tell people who may be concerned about the matter that if a business makes reasonable attempts—including, for example, discussing the VAT position with the customer—and those attempts have failed to ascertain what the correct VAT treatment is in the member state where the customer is based and to which the service is being supplied, businesses may choose to assume that the UK VAT treatment will apply to those supplies, on the basis that it should be consistent with the EC directive and therefore with the law in other member states. That is another open and pragmatic option that people might bear in mind.

There could be some teething problems, but I hope that they will quickly be resolved. As long as business is able to demonstrate that it is taking steps to comply with the new legislation at the earliest opportunity, there will be no question of HMRC penalties. As the hon. Member for Fareham said, we will be debating later the question of penalties.

On the question of accounting systems not being able to cope with the new sales lists, it is not that they cannot provide ESLs but that the time of completion is not always certain. HMRC is discussing that point with businesses.

Question put and agreed to.

Clause 77 accordingly ordered to stand part of the Bill.