The Brexit transition period ended on 31 December 2020. New VAT rules now apply for UK businesses trading with businesses in the EU. This article gives an overview of the situation as it now applies to the sale of services to, and the purchase of services from, the EU.
This blog is based on published guidance as at 31 January 2021. We would stress that further clarification of the rules and procedures may become available in the coming weeks and months.
Export of services
B2B (Business to Business) supplies
The VAT treatment of services is subject to the rules relating to the place of supply of taxable services. After Brexit, the general place of supply rules have not changed. In the future the UK may change the use & enjoyment rules, but this is probably a medium-term aspiration.
The general rule is that the place of supply for B2B services is the place where the customer is situated. For supplies to businesses outside the UK, the place of supply is outside the UK, therefore there is no UK VAT chargeable. As a result, a UK business supplying services to an EU business are not required to charge VAT. This is no change from the situation pre-Brexit.
As the UK no longer forms part of the EU, there is no longer a requirement to complete an EC sales list.
B2C (Business to Consumer) supplies
In accordance with the place of supply rules, the place of supply of services to a non-business customer is generally the place where the supplier is situated. For a UK business, the place of supply would be the UK.
However, special rules apply to various types of services such as advertising services, services of consultants, engineers, consultancy bureaux, lawyers, accountants, and similar services, data processing and provision of information, other than any services relating to land. Under these rules, supplies of this type of services to recipients outside the EU are deemed to take place at the location of the customer. If the customer is situated outside the UK, no VAT is chargeable.
Following transition, the UK is not part of the EU and therefore the distinction between EU and non-EU customers does not apply. Irrespective of whether the customer for such services is in the EU or outside the EU, no VAT is chargeable.
Special rules
Under existing rules, certain services, such as supplies in relation to UK land, transport, restaurant and catering services, hiring goods situated in the UK, broadcasting, and admission to events, conferences and meetings in the UK are treated as made in the UK and are currently liable to UK VAT even where the customer is in the EU.
These rules continue to apply, and VAT is chargeable on such services.
Digital services
From 1 January 2021, all supplies of digital services to consumers in EU member states became liable for VAT in the consumer’s member state. The £8,818 annual threshold for cross borders sales of digital services to EU consumers no longer applies.
Businesses previously using the UK MOSS (Mini One Stop Shop) scheme for dealing with such supplies are no longer able to use this service. Such businesses will have to register for a MOSS scheme in one of the continuing EU states (for example Cyprus).
Import of services
Buying services from or in EU countries
UK businesses buying services from EU countries previously used the reverse charge mechanism, accounting for both input VAT and output VAT on such supplies. This procedure will not change.
One unfortunate side effect of Brexit is that UK businesses incurring EU VAT on travel, hotel or other expenses are no longer able to use the 8thDirective online VAT reclaim system operated via HMRC. Instead, they must use the 13th Directive paper-based reclaim process. This requires individual claims to each country where there is a VAT claim. Last UK claims via the 8th Directive will be for the final quarter of 2020.
Northern Ireland
There are no changes for businesses in England, Scotland or Wales (Great Britain) who trade with Northern Ireland.
The government has confirmed that trade will continue with the UK VAT return and UK registration number.
VAT will continue to be treated as domestic sales and purchases.
Summary
This is a complex area, and the above comments are intended to provide only a broad outline of the position. It is important for businesses to take specific advice from us relating to their own situation and activities.
SRC-Time are one of the South East’s leading accountancy firms in advising the self-employed and partnerships in all aspects of their tax affairs and we are able to assist in any issue raised above.
Our expert team is available to provide you with advice and can be contacted on 01273 326 556 or you can drop us an email at info@src-time.co.uk or speak with an account manager to get any process started.
