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For information of users:
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
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International Services
There are some important changes to consider from 1st January 2010 if you sell services to, or buy services from, overseas businesses.
The idea behind the changes is to reduce the number of transactions where an EU business charges VAT to other business customers in both EU and non-EU countries. Essentially, this is a simplification process.
This will mean that less UK VAT will charged from 1st January 2010 and not more. If VAT is not currently due on a transaction, this will remain the case. The reality is that you may no longer be required to charge VAT, because more services are to be treated as taking place outside the UK for VAT purposes.
The changes only affect business to business services (known as B2B services).
The rules regarding international services made to private individuals (known as B2C services) remain unchanged - for now.
Services provided (to EU and non-EU customers)
The current position
UK VAT needs to be charged on B2B services, unless the type of service falls within an excepted category. The default position is that the service is treated as being supplied in the UK, unless overridden by one of the exceptions which treat the supply as being made outside the UK.
From 1st January 2010
The position will be that the place of supply will be treated as taking place where the customer belongs, unless overridden by one of the exceptions which treat the supply as being made where the work is carried out, or, if related to land, where it is located.
If your supply is outside the UK, no UK VAT should be charged. However if your service is of a type that has to be dealt with under the ‘reverse charge’ mechanism by an EU customer, there will be a new requirement to report this on the EC Sales List, which presently only concerns the sale of goods.
Please refer to the table below for some examples comparing the position before and after the change.
| Type of supply - examples |
Place of supply is where |
| |
Until 31/12/2009 |
From 1/1/2010 |
| “Schedule 5” services, e.g. advertising, services of consultants, engineers, lawyers, accountants and other similar services, supply of staff, equipment hire (not transport), etc. |
Customer belongs |
Customer belongs |
| Services relating to land, e.g. construction works, estate agents, architects, surveyors, etc. |
The land is located |
The land is located |
| Cultural, artistic, sporting, scientific, educational or entertainment services; services related to exhibitions, conferences or meetings, etc. |
Performed |
Performed |
| Intermediary services, e.g. someone who facilitates the supply of goods or services. |
Performed |
Customer belongs |
| Intra-EU supplies of freight transport. |
Performed (place of departure) |
Customer belongs |
| Management services. |
Supplier is based |
Customer belongs |
| Work on goods (not land related), e.g. equipment repair. |
Performed |
Customer belongs |
| Car hire (more than 30 days). |
Supplier is based |
Customer belongs |
Services received (from EU and non-EU suppliers)
You should determine whether you need to account for VAT under the ‘reverse charge’ mechanism, where your supplier does not charge his domestic VAT.
A reverse charge is not a complicated accounting procedure. Where it applies to services which you receive, you, the customer, must act as if you are both the supplier and the recipient of the services.
If it applies, you will need to declare VAT on the services received in Box 1 of your VAT return, but can make a corresponding VAT tax claim in Box 4, assuming that your business is able to fully reclaim this amount.
From 1st January 2010, the number of services that have to be accounted for in this way is set to increase. This is because more services are to be treated as taking place where the customer belongs.
A reverse charge will certainly apply where the service is treated as taking place where you belong. However, certain services will be treated as taking place in the UK for other reasons, e.g. because they are land related or are performed here. This may mean your supplier is required to register for VAT in the UK unless you are required to operate 'extended' reverse charge provisions (as directed on the invoice you receive).
Conversely, many EU countries operate the extended reverse charge provisions, so you can apply this treatment in respect of services that you supply.
Reverse charge procedure
You must make it clear on your invoice that the reverse charge applies and that your customer must account for the VAT.
Your invoice should include your customer's VAT Registration Number if he has one. If so, you will also be required to report the transaction on an EC Sales List.
If you are unsure how to treat a particular service for VAT purposes, please do not hesitate to contact us.
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