Selling services to EU customers: new VAT rules explained
Following the UK’s exit from the EU’s VAT and customs regime on 31 December 2020, there’s been a lot of airtime given to the movement of physical goods between the UK and EU (See our post on Brexit changes to VAT on goods). But what about businesses that provide services?
Firstly the good news. Many of the UK’s VAT rules relating to the supply of services remain unchanged following the exit agreement. In fact, some practical aspects of VAT accounting may even become easier. As an example, when you are billing international customers, then (with some exceptions), there is generally no need to treat EU and non-EU customers differently. See our post here on Brexit changes for importing and exporting.
That said, there remain some changes that all businesses supplying services to the EU need to be aware of. Here are some key changes to VAT on services when trading with EU countries.
The general rule based on place of supply still applies
For VAT on services, the general ‘place of supply’ principle still applies. This rule determines whether the service is within the scope of UK VAT.
For B2B services, the place of supply is where the customer is resident. This means that where your business customer is resident in the EU, the supply of the service is outside the scope of VAT, so zero-rated. Your non-UK-based customer then uses the reverse charge to show the VAT in their return. You will, however, need to account for the transaction as zero-rated on your own VAT return. For this, you need evidence of your customer being out of the UK (typically a valid VAT or tax ID number).
For B2C services, the place of supply is where the supplier (i.e. your business) belongs. This means, just like prior to Brexit, you will need to charge VAT to your EU and non-EU customers, although some important exceptions apply (see below).
The use and enjoyment rules are intended to make sure services are taxed in the place where services are consumed, irrespective of where the parties to the service contract are based. For example, where an EU-based customer hires a vehicle, but that vehicle is to be used solely in the UK, the service would be subject to UK VAT. If you are supplying a service to a customer where that service is likely to be ‘consumed’ across more than one member state, you will need to check the ‘use and enjoyment’ rules in place in all member states that apply to your activities. Some rules may apply solely to B2B services; others may apply to both B2B and B2C.
Services relating to land. The place of supply is where the land is located.
Educational, artistic, and similar services. These services are supplied where they are physically performed.
Services of a professional, technical, financial, intellectual or other intangible nature supplied to B2C customers. These cover a wide range of professional services, including consultants, engineers, lawyers, and accountants. When looking at this you should consider the nature of the service provided rather than the profession. A full list of the services is here.
If you supply any of the above services to consumers, you will likely need to register for VAT in the relevant EU countries. You may also need to appoint a fiscal representative in those countries. Get in touch if you would like more information.
Rules for digital services
‘Digital services’ are mostly app or website downloads that require minimal or no human intervention (e.g. software and media downloads).
B2B digital services are subject to the usual ‘reverse charge’ rule under the basic B2B principle.
Since 2015, suppliers of digital services to EU consumers have had to either register for VAT in the countries where customers are based, or else register for the EU’s community-wide MOSS (mini one stop shop) scheme.
UK membership of MOSS has ceased. UK businesses selling digital services to EU consumers now have a choice: they can register for the EU’s MOSS system for non-member states, and register for VAT in just one EU member state. The alternative requires you to register for VAT in each of the EU countries where you supply the digital services.
Applying the rules around VAT on services is complicated. The above information is indicative only and incomplete. We would recommend getting in touch and speaking to us if you have any queries in relation to the in relation to services VAT.
Looking to streamline your VAT, payroll and other finance functions to focus on your core business? Speak to MJH Accountancy today.