HMRC have updated their internal VAT manual to clarify the “place of supply” rules for services. This is one of the most complex areas of VAT legislation and of course the rules changed significantly since the UK left the EU.
The country where a supply is deemed to be made is called the ‘place of supply’ and is the place where it is liable to VAT, if any. The purpose of these rules is to ensure VAT, if payable, is paid in the correct country and to prevent supplies from being taxed more than once.
In general, B2B services (services provided between businesses) are taxable in the country where the customer resides, although there are numerous exceptions based on the nature of the services. UK suppliers are responsible for VAT on their supplies if both the supplier and the customer are based in the UK. If the supplier is in the UK and the customer is outside the UK, the supply will be outside the scope of UK VAT.
Where the supply is to a non-business customer (B2C), the general rule is that the place of supply is the place where the supplier belongs. Where the place of supply of a service is in an EU member state, that supply is outside the scope of UK VAT and is liable to the VAT rules in that member state. Outside of the UK and EU, the place of supply of a service is considered to be outside the scope of VAT.
It is important to determine whether a supply of services is made to a relevant business person (B2B) or non-business customer (B2C). A person is a relevant business person in relation to a supply of services if:
- the person carries on a business, and
- the services are not received by the person wholly for private purposes.