Updated – VAT implications of selling services to the EU after Brexit

The Brexit transition period ended on 31 December 2020.  New VAT rules now apply for UK businesses trading with businesses in the EU.  This blog gives an overview of the situation as it now applies to the sale of services to, and the purchase of services from, the EU.

This blog is based on published guidance as at 15 January 2021.  As we are still in the early stages of Brexit, further clarification of the rules and procedures may become available in the coming weeks and months.

B2B (Business to Business) supplies

The VAT treatment of services is subject to the rules relating to the place of supply of taxable services.  After Brexit, the general place of supply rules have not changed.

The general rule is that the place of supply for B2B services is the place where the customer is situated.  For supplies to businesses outside the UK, the place of supply is outside the UK, therefore there is no UK VAT chargeable.  As a result, a UK business supplying services to an EU business are not required to charge VAT.  This is no change from the situation pre-Brexit.

As the UK no longer forms part of the EU, there is no longer a requirement to complete an EC sales list.

B2C (Business to Consumer) supplies

In accordance with the place of supply rules, the place of supply of services to a non-business customer is generally the place where the supplier is situated.  For a UK business, the place of supply would be the UK.

However, special rules apply to various types of services such as advertising services, services of consultants, engineers, consultancy bureaux, lawyers, accountants, and similar services, data processing and provision of information, other than any services relating to land.  Under these rules, supplies of this type of services to recipients outside the EU are deemed to take place at the location of the customer.  If the customer is situated outside the UK, no VAT is chargeable.

Following transition, the UK is not part of the EU and therefore the distinction between EU and non-EU customers does not apply.  Irrespective of whether the customer for such services is in the EU or outside the EU, no VAT is chargeable.

Special rules

Under existing rules, certain services, such as supplies in relation to UK land, transport, restaurant and catering services, hiring goods situated in the UK, broadcasting, and admission to events, conferences and meetings in the UK are treated as made in the UK and are currently liable to UK VAT even where the customer is in the EU.

These rules continue to apply and VAT is chargeable on such services.

Digital services – general

From 1 January 2021, all supplies of digital services to consumers in EU member states became liable for VAT in the consumer’s member state. The £8,818 annual threshold for cross borders sales of digital services to EU consumers no longer applies.

Digital services – B2B

For B2B supplies of digital services, the general rules for B2B services apply. The place of supply is where the customer is located, therefore the supply is not subject to UK VAT.  The UK supplier should not charge VAT and the business customer will account for VAT in their own country using their local reverse charge procedure.

Digital services – B2C

The situation with B2C supplies of digital services is different.  The place of supply is still the country in which the customer is located, but for B2C supplies the responsibility for accounting for VAT in that country lies with the supplier, not the customer.

UK businesses making B2C digital supplies to EU consumers would previously have used the UK MOSS (Mini One Stop Shop) scheme for dealing with such supplies, but this service is no longer available.  Such businesses will now have to register for a non-Union MOSS scheme in one of the continuing EU states (for example Ireland).

Buying services from EU countries

UK businesses buying services from EU countries previously used the reverse charge mechanism, accounting for both input VAT and output VAT on such supplies.  This procedure will not change.

This is a complex area and the above comments are intended to provide only a broad outline of the position.  It is important for businesses to take specific advice relating to their own situation and activities.

Note: this blog was originally published in December 2020 and has been updated in January and February 2021

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.