In this article, I am going to cover VAT on services after Brexit.
B2B or B2C Services to UK Customers
First let’s consider B2B or B2C Services to UK Customers If you are a UK business supplying services that are usually subject to VAT to UK customers then it is super simple, and nothing changes.
B2B Services to customers that are based outside the EU or the UK
If you are selling B2B Services to customers that are based outside the EU or the UK then that’s also super simple and these services are classed as out of scope UK VAT. So NO VAT is charged.
B2B Services to EU Customers
The supply of Services to EU B2B Customers is where it gets a little more complicated as VAT rules are based on the place of supply.
So what does that mean?
B2B services are generally deemed as supplied where the business customer is located. There are exceptions with land/transport/digital services but they are out of scope for this article. See what I did there?!
Say for example you are based in the UK and you offer training or consultancy services to your client. Regardless of whether you deliver those services remotely via Zoom, or whether you travel to your customers’ location and deliver them in person – the place of supply is deemed to be the location of the customer.
You have to be certain your customer is actually a business customer by collecting commercial evidence – their VAT number, a certificate of tax residency or other commercial evidence that they are a business. We have suggested to all of our clients that where possible they also collect website details too.
Once proven that this is a business customer and they are based in the EU, they are deemed out of scope for VAT.
Exactly the same as if you were billing the US, Australia, India etc.
If you can’t PROVE that it is a business customer by collecting the proper commercial evidence. You have to treat as a B2C customer.
We have been encouraging our clients to contact all B2B customers that are not VAT registered and make efforts to collect the proper evidence and for new clients – they go through an onboarding process (online or 121) and collect that evidence when they first enter into a relationship with them.
Post Brexit, we no longer need to put the customer’s VAT registration number on the invoice but since we have to collect that information anyway to prove the customer is a business entity then there is no need to change your invoices if you don’t want to.
Finally, let’s look at B2C Services to EU Customers.
Vat status is determined by the place of supply rules for services. B2C services are generally deemed as supplied where the supplier belongs regardless of the location of the customer. So they would be supplied in the UK and be subject to UK standard rate VAT.
VAT must be accounted for on UK tax returns and paid to HMRC.
If the end customer is a consumer or a non-vat registered business, then they won’t be able to recover the VAT anyway.
Effectively they would pay the same price as a UK consumer.