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Major changes have been implemented over the last year to the rules which determine whether VAT is chargeable on services supplied by a UK business to a customer based abroad.
Business customers-The overall effect of these changes is to move most supplies to businesses out of the charge to UK VAT, thus relieving the UK supplier from a certain amount of administration. Instead the business customer will account for VAT in the country of receipt - in which of course the recipient is likely to be registered for VAT. This process is known as the "reverse charge", and under it the recipient business declares output VAT on the services received in the period, and then recovers this as input tax - if of course the business is able to recover VAT.
The changes for UK businesses mean that suppliers of services will need to check whether their customer is an established business or not as supplies to consumers may still be liable to UK VAT. It is not absolutely necessary to check that your customer is registered for VAT - although this is a reasonable way of ensuring that the customer is actually a business entity.
Non-Business customers-When making a supply of any services to a private customer in the EU, the place of supply remains the UK (assuming the supplier is based in the UK) and therefore you must charge UK VAT on that supply. This applies to all services of whatever nature. Some supplies to private customers outside the EU are not liable to any VAT at all - these services are known as "Schedule 5 services" and include the services of accountants, lawyers and consultants.
Services in connection with supplies of land -These are always supplied where the land is physically situated, so if the supply is made by a UK estate agent to a business client in Spain, in respect of land in Germany, then the supply is made in Germany. This has always been the case, so it is the one remaining rule which keeps the place of supply separate from the general "customer based" rule which now applies to almost every other supply of services.
Please note:The ideas shared with you in this article are intended to inform rather than advise. Taxpayers' circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this tax factsheet, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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