A number of changes occurred at the start of 2011, which are likely to be of potential interest to clients.
VAT on the import (and sale) of natural gas
All imported natural gas (including liquefied natural gas imported by tanker) will be zero-rated from 1 January 2011. We advised companies of these proposals in August and July last year. Briefly, their main effect was to be that Companies are relieved of the need to pay VAT on import. They must still, however, complete the C88 import declarations as these are used for controlling the actual movement of goods into the UK from outside the EU (and vice-versa). The procedures for doing this have, however, changed.
The ability to send manual gas import entries to Salford for processing ceases after the entry for December 2010 imports is submitted in early January; and
Import entries for gas physically imported from 1 January 2011 on must be entered directly into CHIEF.
CHIEF is a Government system giving direct trader access to electronic processing of imports and exports. Although gas importers will still be able to send entries to Salford for input to CHIEF by HMRC, this may not be the most satisfactory solution and is unlikely to be available indefinitely. As an alternative to inputting data into CHIEF themselves, companies might wish, therefore, to consider using a third party with access to CHIEF – their forwarding agent, for example – to submit the import entries on their behalf.
It is understood that importers of gas are likely to be contacted by Salford at some stage. However, companies considering sending in manual entries would be advised to write to the NCH at Salford to ask what the procedures are.
The place of supply rules for services
The rules on the place of supply of most business-to-business services changed from 1 January 2010. Not all business-to-business services were immediately affected, however, and supplies of cultural, artistic, sporting, scientific, educational, entertainment and similar services remained, for the time being, treated as supplied where performed.
This now no longer applies and, from 1 January 2011, these types of business-to-business services will be treated as supplied where the customer is established – i.e. under the general rule for business-to-business services. For companies in the upstream oil and gas sector, however, the practical effect of this may not always be material.
It will not necessarily mean, for example, that services to an Operator will be subject to VAT as work classified as scientific services can often be treated in the alternative as services related to land. Thus, where the licence area concerned is outside the UK or UK territorial waters, the supply could then be regarded as taking place where the land is situated – and outside the scope.
This is likely to equally apply to charges for exploration or exploitation at the wellhead or balancing payments on Unitisations.
Change in the standard rate of VAT to 20 per cent
The standard rate of VAT went up from 17.5 per cent to 20 per cent on 4 January 2011. This should not be of major concern to our Oil Industry clients as the normal rule is that you use the new 20 per cent rate for all VAT invoices issued on or after 4 January.
The change will also mean, however, that there will be a consequential impact on the VAT Payment on Account thresholds, where a business is required to make monthly VAT payments. The entry and exit thresholds will go up from £1.6m and £2m to £1.8m and £2.3m and will change on 1 June 2011 for quarterly reviews and on 1 December 2011 for annual reviews.
Anyone wishing to discuss any of these issues may contact Peter Landon or their usual CWE contact.