Customs' proposals on VAT exemptions will lead to a 'logistical nightmare', say tax specialists
Brokers face huge accounting bills if Customs & Revenues' proposals on the implementation of the recent European ruling on VAT exemptions for outsourced activities are accepted, experts have warned.
Last week Customs & Revenues published its consultation paper on the circumstances in which companies would continue to be able to claim an exemption from paying VAT.
The consultation paper says that brokers providing outsourced administration services must pay VAT unless they can show that they also acted as an introducer.
But experts warned that brokers' accounting systems are not set up to make this distinction.
Peter Jenkins, global head of indirect tax at Ernst & Young said: "To provide an audit trail proving there is a single supply, as required by Customs, would be a logistical nightmare."
Cathy Hargreaves, head of VAT practice at PricewaterhouseCoopers, added: "Customs are looking at this in very simplistic terms. In practice it will be very difficult and costly to ascertain where to draw the line between administration of introduced business and other business."
Questions have also been raised over the VAT status of brokers who buy books of business and therefore don't introduce some of the policies they are administering.
Brokers, insurers and affected parties have until 30 September to put their case to Revenue and Customs.
Any legislative changes are likely to come into effect on 1 January 2006.
Key points of Revenue and Customs' consultation pape