Much of the attention surrounding the changes in VAT treatment following the UK’s departure from the EU VAT regime has focused on cross-border supplies of goods, however there will also be consequential changes to the treatment applied to certain supplies of services, as this article will endeavour to explain.
Business-to-Business (B2B) supplies of services
Presently, the place of supply for the vast majority of B2B services is where the customer belongs, and thus no VAT is charged by a UK supplier whether the customer is based in the EU or the rest of the world. There will be no change to this treatment from 1 January 2021 – the EU will simply become part of the rest of the world as far as the UK supplier is concerned. However, there will no longer be any requirement to complete EC Sales Lists, either in respect of services or goods.
A UK business receiving a supply of services from a non-UK supplier on which no VAT has been charged should continue to apply a reverse charge process as currently.
Business-to-Consumer (B2C) supplies of ‘intellectual and professional services’
The place of supply for B2C supplies of services is generally where the supplier belongs, so a UK supplier will normally charge UK VAT on such supplies. However, historically, the supply of so-called ‘intellectual and professional services’ has been an exception to this rule.
Services that come within this heading are, for example, those supplied by consultants, engineers, lawyers, and accountants; data processing services and the provision of information; banking, financial and insurance services, and advertising services. When supplied to a consumer belonging outside the EU, the place of supply becomes the place of belonging of the consumer, so no UK VAT is charged on such supplies made by a UK business. The HMRC Press Office has confirmed that, from 1 January 2021, this ‘consumer’s place of belonging’ rule will extend to supplies of the abovementioned services to consumers belonging in the EU – so, for example, a UK accountancy firm will no longer have to charge VAT to a French resident for preparing his/her UK tax return.
Business-to-Consumer (B2C) supplies of digital services
On 1st January 2015 the EU introduced new rules governing the place of supply of digital services (services that are automatically delivered over the internet, or an electronic network, where there is minimal or no human intervention). Under these rules, B2C supplies of digital services have been subject to VAT in the country where the customer is located, although for UK providers, since 1 January 2019 a de minimis rule has applied such that if their relevant sales across the EU in a year (and the preceding year) fall below a threshold of €10,000 (£8818), then UK VAT will be applicable.
To avoid having to register in a number of different EU member states, UK suppliers have been able to sign up to the Union VAT MOSS scheme which allows businesses to account for all VAT due on these types of supplies through a single return in their home country.
Post-Brexit, UK businesses will no longer be able to use the Union MOSS scheme and instead ill need to register for the Non-Union MOSS scheme in one EU member state, or register for VAT in each member state where the business has customers. The €10,000 threshold noted earlier will no longer apply.
‘Use and enjoyment’ Provisions
For some services (electronically supplied services, telecommunications services and repairs to goods under an insurance claim (B2B supplies only) and the letting on hire of goods (including means of transport) and radio and television broadcasting services) there is a further consideration to determining the place of supply for VAT purposes.
Historically, if the normal analysis produces a result that the place of supply is in the UK, but the service is enjoyed outside the EU, then the place of supply becomes outside the EU and no UK VAT is chargeable.
Conversely, if the normal analysis produces a result that the place of supply is outside the EU, but the service is enjoyed in the UK, then the place of supply becomes the UK and UK VAT is chargeable.
HMRC has confirmed that, from 1 January 2021, the current use and enjoyment provisions will continue to apply, the only change being that UK to EU rules will effectively be the same as those currently for UK to rest of the world as described above.
‘Specified services’
There are certain services which, when supplied in the UK, are exempt from VAT, meaning that the supplier cannot recover UK VAT incurred on costs associated with making those supplies. However, historically, when the same services are supplied to a person belonging outside the EU, UK input tax recovery is allowed. The relevant services are:
- exempt services directly linked to the export of goods to a place outside the EU, and
- the provision of insurance or financial intermediary services.
HMRC has confirmed that, from 1 January 2021, input tax recovery will be allowed when these services are provided to any person belonging outside the UK.