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TaxationWeb by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, outlines some potential VAT difficulties with cross-border supplies to other EU StatesThe rules regarding the supply of services to customer in other Member States of the EU are complex, and can cause businesses a lot of problems if they are not aware of the implications of what the are doing.

There are different ‘place of supply’ rules for different types of services, and can mean that a business has a liability to register for VAT in another Member State of the EU that it never considered.

The Basics

The basic rule is that services are treated as being supplied in the UK, and are, therefore, subject to UK VAT. However, as you would expect with VAT, there are a number of special rules relating to most types of services that can be provided.

Dealing with the more simple rules first - a number of services are treated as ‘supplied where the customer belongs’ (provided the customer is in business and not a private individual), where the customer accounts for VAT on your behalf. This means there is no need to charge UK VAT or register for VAT overseas. Services of this nature include most types of consultancy services, such as legal and accounting services, supplies of staff, royalty payments, advertising etc. Do remember that if you yourself receive any of these services from a supplier outside the UK, you have to charge yourself UK VAT, albeit that you can reclaim it on the same VAT return, subject to the normal rules. To that extent, it is just a paper transaction.

Supplies of land

Things get more complicated with services that are ‘supplies relating to land’. Services relating to land include such things as construction work, shop fitting, and estate agency services. These types of services are all supplied where the land is situated. So, for example, an estate agent in Kent is asked to sell a holiday home in the South of France on behalf of its British resident owners. It is advertised as a holiday home in the estate agent’s shop in Kent, and is sold to another UK resident wanting a French holiday home. Normally, you would think UK VAT is involved, but that is not the case. The land is situated in France, so the place of supply is also in France. The UK estate agent is liable to register for VAT in France and charge his UK customer French VAT at 19.6%. A lot of administrative hassle and costs for the estate agent!

Other supplies

There are other services that are treated as ‘supplied where physically performed’. These include repair and maintenance, putting on conferences and exhibitions, training, and entertainment. A couple of examples include a client who ran some fair ground rides. He went to a fair in The Netherlands, and at the end of the first day, a Dutch VAT Officer came up and handed him a Dutch VAT registration form. The Officer said he would be back in the morning to collect it. The Officer duly did, and the client found himself registered for VAT in Holland. In another example, a company provided training to a multi-national company. They were asked to provide a training course to the subsidiary in Eire, and agreed to do so. They then found out that the place of supply was in Ireland (where the training course was held) and they were required to register for VAT.

Tip

If you are going to provide services to customers in other Member States of the EU, always get professional advice so that you take account of any VAT registration requirements. If you don’t, and the local tax authorities find out, you could find yourself with a large VAT bill, plus penalties and interest!

October 2004

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com


VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc