VAT on the Supply of Services Post-Brexit
Government guidance on VAT on the ending of the Brexit transition period is helpful, particularly for those in the service industry. The Law Society has also recently published useful guidance which businesses and their legal advisers will find particularly useful.
Importantly, the UK cannot enter into bilateral agreements in the area of VAT. The Society’s guidance on VAT post-Brexit sets out the implications on VAT from the end of the Brexit transition period and is a useful reference point for ensuring continued compliance with the rules on VAT (though note it is subject to the UK-EU trade agreement of 24 December 2020).
Post-Brexit position
The UK is now a ‘third country’ for European Union VAT purposes, which means that from the beginning of 2021, the VAT rules applicable to the supply of services between the UK and EU member states have become the same as the current rules for the supply of services from the UK to outside the EU.
B2B – The supply of services busines-to-business (B2B) from the UK to the EU is outside the scope of UK VAT – the general position now is that it is treated for VAT where the customer is resident. The customer in the relevant EU member state self-accounts for VAT under the 'reverse charge' mechanism via their VAT return.
Similarly, imports of services by UK businesses from the EU attract VAT under UK rules pursuant to the reverse charge.
B2C – In the case of business-to-consumer (B2C) supplies of services to the EU, the UK VAT rules apply. Examples of such supplies include the transfers and assignments of intellectual property such as copyrights and trademarks, advertising services, consultancy and engineering services and the supply to staff.
However, special rules apply in some situations, including in the case of the supply of legal services. Specifically, for the supply of non-land-related legal services from the UK to an EU or other non-UK consumer, the service is outside of the scope of UK rules and no VAT is chargeable.
In the case of the supply to the EU of B2C digital services, the ‘place of supply’ is where the customer lives and VAT is due in that EU member state. However, firms supplying digital services can continue using the simplified MOSS system if they register.
In the case of the supply of financial services, firms exporting some financial products to the EU can reclaim related input VAT (the rules have been brought into line with supplies to non-EU customers).
Intermediary Services – Intermediary services may be zero-rated, for instance in the case of making export arrangements or arrangement for the supply of services to be made outside the UK.
VAT Refunds - Businesses in the UK will still be able to claim VAT refunds from member states but will need to use the relevant processes as a non-EU business, which will vary between member states.
By their very nature, VAT rules are complex and specialist advise from tax lawyers should be sought. Readers will also find useful the examples set out in the guidance documents.
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