CONTACT - Guernsey Chamber of Commerce

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coMMeNt | Goods and sales tax By any other name Guernsey’s States recently rejected calls for the introduction of a goods and sales tax. However, in some circumstances, we may already be incurring VAT unnecessarily as Graham Parrott, tax partner, and Poppy Williams, assistant tax advisor, at Ernst & Young LLP report for Contact. although we do not have any form of value added tax (Vat) in Guernsey at the moment (and just to be clear Jersey’s GSt is just another name for the same thing), we do experience this indirect tax indirectly. a number of UK-based High Street stores charge us the same price as customers in the UK. the difference is that the additional 17.5 per cent added to the price of what we buy, soon to be 20 per cent, is kept by the retailer rather than handed over to the UK exchequer. and it is perhaps ironic that whilst there is nothing we can do about the additional cost suffered here in Guernsey, other than perhaps by voting with our feet, it is still possible to recover some of the ‘real’ Vat we suffer in the UK. this article looks at the rules which enable us to do so. although Guernsey sits outside of the eU for Vat purposes, Vat still affects businesses in the island, due to their frequency of 30 | CONTACT | OCTOBER/NOVEMBER 2010 | www.guernseychamber.com trade with the UK. recent changes to the so-called ‘place of supply’ rules will have an impact on suppliers of services established in Guernsey and, by consequence, customers in the UK. equally, the changes will affect purchasers of services established in Guernsey. there are no such changes to the place of supply rules for goods and so UK Vat may still be incurred. as noted above, there are schemes and claim options in place to recover the UK Vat if incurred by a business or individual located outside the eU. Place of supply of services rules From 1st January 2010 the place of supply rules changed such that the general rule for services supplied to business customers are treated as subject to Vat where the customer belongs (services supplied to non business customers remain taxable where the supplier belongs). these changes mean that the instances of Guernsey businesses purchasing services subject to Vat will be reduced. certain exceptions to the general rule still exist: for example, land related services, which are subject to Vat where the land is situated. equally, the vast majority of services supplied by Guernsey businesses will not carry any Vat. UK customers receiving supplies of services from Guernsey businesses will, for the most part, be required to self-account for Vat on the services under the ‘reverse charge’ mechanism, where business charge themselves Vat but may recover this under the rules that normally apply. 13th directive claims if eU Vat is incurred by a Guernseybased business, it can be recovered through a 13th directive claim. this allows businesses in most non-eU countries to obtain a full Vat refund of any Vat they have paid on goods or services. certain conditions must be met before a claim can be made. Vat can only be recovered through a 13th directive claim if it directly relates to business supplies; the
claimant must not be Vat registered (or liable to be Vat registered) in the UK and they must have no business establishment within the UK or any form of eU based residence. Furthermore, the claimant must make no taxable supplies in the UK. the claim itself must be made within six months of the end of the year in which the Vat was paid. in order to reclaim the Vat a Vat65a form must be completed and proof of the purchase must have been retained in the form of a correctly completed invoice. the first time a Guernsey business opts to make a 13th directive claim a certificate stating that the business is registered for business purposes must be provided to HMrc. Retail Export Scheme the retail export Scheme (reS) exists to allow those outside the eU to recover Vat paid on goods. in addition, the reS allows traders to zero rate goods when sold to non-eU residents. only certain goods are eligible to be bought under the reS ‘In these times of financial constraint, if this is relevant to you, it is important to make sure you have not incurred UK VAT unnecessarily.’ and the reS may only be used if certain conditions are met; the export must occur within three months of when the goods were purchased, the relevant forms must be completed at the point of sale and the individual/ business being refunded must send proof that the refund is allowed to the trader. traders selling goods are under no obligation to enter the scheme; they also have the option of excluding certain goods from the scheme. if goods are going to be purchased under the scheme a refund document must be completed when the sale takes place. the trader should provide a Vat407 form or, in its absence, an approved invoice may be used if it is signed by both parties. the form or invoice must be stamped on exit from the UK, where occasionally the goods will be examined and then HM revenue and customs (HMrc) will return the approved form to the trader who, in turn, will issue a refund. So, if you as an individual buy goods from the UK, you may well be able to recover the Vat. You should check with the retailer. a business here can recover Vat on goods and services, provided the relevant conditions are met, under the 13th directive, whilst most services should no longer suffer Vat. in these times of financial constraint, if this is relevant to you, it is important to make sure you have not incurred UK Vat unnecessarily. and whether we will introduce such a tax in Guernsey is for another day. www.guernseychamber.com | OCTOBER/NOVEMBER 2010 | CONTACT | 31
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