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To start off with some good news, the rules for services will largely remain unchanged after 1 January 2021- as things stand.
Trading in services with the EU can be categorised into three broad scenarios which will cover most UK traders.
Sales of business to business (B2B) services
The general B2B rule (VAT Notice 741A) stipulates that if the customer is outside the UK and in business, no UK VAT is charged on the services in question. The one change come 1 January 2021 concerns EU sales lists, which will not need to be completed.
Practically, it would still be wise to show the EU customer’s VAT number on the sales invoice, because it’s the best evidence of a B2B deal (though there are other source documents). Afterall it is the B2B outcome which means the place of supply is the customer’s country, thereby making the supply “outside the scope” of UK VAT.
Buying services from EU suppliers
The status quo is that a VAT-registered UK business that buys services from abroad must apply the “reverse charge”. This applies to supplies not just from the EU. After 31 December 2020, nothing is planned to change.
Where the reverse charge applies to services which you receive, you, the customer, must act as if you are both the supplier and the recipient of the services. You simply credit your VAT account with an amount of output tax, calculated on the full value of the supply you’ve received, and at the same time debit your VAT account with the input tax to which you’re entitled, in accordance with the normal rules. If you can attribute the input tax due under the reverse charge to your taxable supplies (and so can reclaim it in full) then the reverse charge has no net cost to you. This tends to be the case if you are in business. If you cannot attribute the input tax due the effect is to make you pay VAT on the supply at the UK rate. This puts you in the same position as if you had received the supply from a UK supplier rather than from one outside the UK.
Sales of business to consumer (B2C) services
The general rule is that VAT is charged based on the location of the supplier, as opposed to of the customer with B2B. So if a UK accountant completes a tax return for a private individual living in France, the fee will be subject to 20% UK VAT. Where a B2C customer resides outside the EU, say in Canada, most professional services are not subject to UK VAT. The services for which this rule applies are listed in VATA 1994, Sch 4A para 16 and VAT Notice 741A, paragraph 12.
One consideration for these late-in-the-day Brexit negotiations is whether legislation will be passed to remove the difference between selling services to an EU versus a non-EU consumer. As things stand and per the HMRC press announcement, following 31 December 2020 no VAT will be charged on B2C services supplied to EU customers under UK VAT law for the professional services in question. So the accountant will no longer charge UK VAT to their B2C customer in France. The only way this would change is if the French tax authorities introduced a “use and enjoyment” rule for B2C accountancy services, so that work for customers living in France would be subject to French VAT.
Use and enjoyment rules
The use and enjoyment rules are intended to make sure taxation takes place where services are consumed, where either services are consumed within the UK but would otherwise escape VAT, or they would be subject to UK VAT when consumed outside the UK and EU.
Effective use and enjoyment takes place where a recipient actually consumes services irrespective of the contractual arrangements, payment or beneficial interest. The services covered by these rules are:
By way of example, consider a Canadian based videographer (in business) who tours the UK to video the Lake District, for a Canadian broadcaster. The Canadian videographer has hired a camcorder from a UK shop for a fee of £3,000. Under the general B2B rule, no UK VAT is charged on that sum- the place of supply being Canada- but now the use and enjoyment rules means that the place of supply reverts to the UK, where the camcorder is being used. He will be charged £600 VAT by the shop. This is the position that will take effect from 1 January 2021, for any businesses based outside the UK, including EU countries.
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