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Cross-border professional services and VAT from 2021

/ 23 December 2020

Malcolm Winter

Some of our readers may have spotted that the ‘Transitional Period’ following the UK’s departure from the EU comes to an end on 31 December 2020.

There are (to say the least) quite a number of consequences to this.  But the only one we are addressing in this note is the treatment of a cross-border supply of ‘professional services’.

By ‘cross-border’ we mean services made by a UK supplier to a non-UK customer.  And we use ‘professional services’ to mean the services of a professional, technical or intangible nature that are listed in VAT Notice 741A here (section 12).  This includes in particular the services of consultants, engineers, lawyers and accountants – but also includes a number of other kinds of service.

Until 31 December, the rules have been different according to whether your customer is or is not a business customer and whether your customer ‘belongs’ in another EU member state.  Broadly, a business customer ‘belongs’ wherever the business establishment consuming the supply is located; a non-business customer ‘belongs’ in the country in which he or she usually lives.  (Tax nomads present an interesting rabbit-hole down which we are not venturing on this occasion).

From 1 January things become simpler.  A single rule applies in every case: if your customer ‘belongs’ outside the UK, the supply is treated as having been made outside the UK and you therefore don’t charge VAT.  But nothing changes as regards recovery of ‘input’ VAT related to the supply: if the supply would have been chargeable to VAT but for the place of belonging of the customer, you can still recover ‘input’ VAT despite the fact that you aren’t charging ‘output’ VAT.

You no longer need to obtain evidence that the customer is in business (because it no longer matters): you do, however, need to retain reasonable evidence to show where the person to whom or to which you have supplied the services ‘belongs’ outside the UK.

There are a couple of quirks.

The first is that if you are making ‘continuous supplies’, the VAT point is not (as in other cases) the time at which the supply is actually made; it is instead the earlier of the time at which you issue a VAT invoice and the time you receive payment.  So if you are paid after 31 December 2020 for a ‘continuous supply’ for which you have not issued a VAT invoice before 1 January 2021, no VAT is due.

Second, if your retail customer ‘belongs’ in the EU, there is a theoretical obligation to register for the local equivalent of VAT in the customer’s country.  In practice, such an obligation is difficult or impossible to enforce, especially where the supplies of services are small and infrequent.  For certain ‘digital services’ the EU’s solution has been to introduce a ‘Mini One Stop Shop’ (‘MOSS’); we understand that the EU may be contemplating the possibility of extending MOSS to cover professional and other services.  Meanwhile, neither UK nor EU VAT will in practice be chargeable.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

Malcolm Winter

Adviser, VAT

T +44 (0)20 8922 9273
E malcolm.winter@bkl.co.uk

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