The implication on VAT for the provision of services to the EU

22nd October 2019

The previous blogs in our Brexit series have focussed upon the VAT treatment of importing goods into the UK. However, in this blog, we look at addressing the VAT implications when providing services to the EU, post Brexit.

Service provision

Changes to VAT Legislation

While the UK remains part of the European Union, its VAT laws are taken from the relevant EU legislation and these rules govern where supplies are taxed for VAT purposes. The UK also has its own VAT legislation, which is itself derived from the rules of the EU legislation. Theoretically, once the UK leaves the EU, it will no longer be bound by the European VAT legislation, meaning it could have free reign to amend its VAT rules as it sees fit.

For example, the UK should be able to apply different reduced rates of VAT to certain services, where it is currently unable to do so.  However, this also means that certain simplification measures that businesses have been able to rely on this past, may no longer apply in the UK.

Place of Supply Rules of Services

The ‘Place of Supply Rules’ are general guidelines to determine where the supply of services has taken place for VAT purposes, and helps establish where any VAT due would be payable.

Generally, B2B services are supplied, for VAT purposes, where the customer is based and the customer themselves must account for the local VAT. For B2C supplies, UK VAT generally applies.

Whilst it is not completely certain, it’s likely that the ‘Place of Supply Rules’ currently in place will remain part of the UK VAT legislation post Brexit and we would expect there to be little change concerning supplies of services, both B2B and B2C. This should aid businesses following the UK’s exit of the EU as disruption, on this aspect of legislation at least, should be minimalised.

There are some exceptions to the Place of Supply Rules, which means UK businesses may need to register for VAT in other EU Member States. Examples include services connected with land, property and admission to events. Whilst it may be currently possible for your VAT registered customer to account for VAT using the reverse charge mechanism, this may not be applicable going forward. 

When receiving services, we would expect to see UK businesses still applying a reverse charge to the receipt of services from non-UK suppliers. This would ensure there is no competitive advantage from sourcing services via non-UK suppliers.

Although the disruption to supply of services looks to be minimal, it’s likely that a certain amount of disruption will occur as other legislative changes are likely to take place. 

UK VAT and the Mini One Stop Shop (MOSS)

The biggest change for supplies of services will be on digital services. Currently, for suppliers of B2C digital services, it is possible for a VAT registered business located in the EU to register and use the Mini One Stop Shop (MOSS) scheme for accounting for VAT on supplies of digital services.

If the UK leaves the EU with no deal, businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU.

Businesses that wish to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU member state. This can only be done after the date the UK leaves the EU. Alternatively, a business can register in each EU member state where sales are made.

For further information contact our team today on 01926 422292 or email Jessica Mason on jessica.mason@hboltd.co.uk