VAT clogs the open border

Click to follow
The Independent Online
NEW VAT rules designed to cut back the red tape surrounding trade within the EC start on New Year's Day. But the effect on trading companies will not be entirely positive.

First the good news. Customs posts and frontier controls will disappear from the EC's internal borders. With them goes much of the import and export documentation that currently accompanies each transaction. For EC trade at least, the loathed Customs and Excise 54-box Single Administrative Document (SAD) will be no more.

Michael Booth, partner in charge of the European Customs and International Trade practice at Coopers & Lybrand, estimates that this will save businesses pounds 40- pounds 50 per transaction on about 85 per cent of trade within the EC. The elimination of border delays will produce further savings.

Unfortunately, there will be problems and costs too. The principal difficulty, Mr Booth explains, arises because the EC does not yet charge VAT on transactions at the rate in the country of origin. This, the simplest policy, is expected to be adopted around 1997. In the meantime a stopgap system will be used.

Companies' invoicing systems will have to reflect three different types of sale: domestic, EC and non-EC.

Exports to non-EC countries will continue to be zero-rated and still require a SAD. But sales within the EC will only be zero-rated if both customer's and vendor's VAT numbers in the destination country are provided. So a company will need a separate VAT number for each country it sells to.

The vendor must then levy the VAT and therefore keep track of rates throughout the EC. There are cash- flow penalties if payment is not made within the VAT accounting period.

Life for mail order and other businesses supplying direct to non-VAT- registered customers is supposed to be less complicated, Mr Booth says. Below a certain limit - 35,000 to 100,000 ecu ( pounds 24,500- pounds 70,000) depending on member state - VAT applies at the vendor country's rate. If sales exceed this, the company will have to account to the VAT authorities in each EC country it sells to. This will necessitate appointing a local fiscal agent where the company has no direct presence in a country.

A final problem arises because EC governments still want the detailed trade information previously taken from the SAD forms. Companies with EC trade above pounds 135,000 a year will now have to complete a new monthly return.

Around three-quarters of British exporters fall below this limit and will be exempt. However, warns Mr Booth, the limit covers all movements of goods and not just sales. Fixed-asset movements and branch transfers are included. Companies accustomed to regarding exports as sales ledger transactions need to interrogate stock control and asset registers as well.

It is perhaps no surprise that a survey carried out by Arthur Andersen this month found at least 38 per cent of European companies unlikely to be ready for the new regime; while 74 per cent believe they are prepared.

(Photograph omitted)

Comments