How has Brexit affected VAT on the supply of services?
Due to Brexit, the VAT rules have changed for supplies of services to customers in the EU. While these are less onerous than the new rules for goods, what, if any, changes should your clients be making to their VAT procedures?
Supply of services:
Businesses buying and selling goods to customers in the EU have been inundated with new procedures and guidance from HMRC. By contrast, there's been little information about the effect of Brexit on VAT for businesses in respect of charges they make for the supply of services. Fortunately, they are less significant.
For services your client supplies to EU customers, they must first decide where the supply takes place for VAT purposes. This isn't straightforward. Just because your client's business is in the UK, it doesn't mean that supplies they make are subject to UK VAT.
Since Brexit, the general VAT rule is that for business-to-business (B2B) supplies, i.e. where the customer is a business, the place of supply is where they belong (this is the position for customers in the EU or elsewhere abroad). The supplies are outside the scope of UK VAT. For bookkeeping purposes, your client should zero-rate charges for services provided on or after 1 January.
Trap - Special rules apply to some types of service so that they are treated as supplied in the UK even if the B2B customer is overseas. For example, certain service relating to UK land and buildings. Your client must charge the customer the appropriate rate of VAT (usually, the standard rate).
Tip - To treat a B2B supply of services as outside the scope your client must have evidence that their customer is based outside the UK, e.g. a valid VAT number, otherwise they must treat the supply as business to consumer (B2C).
The general rule for B2C services to EU customers continues to apply for post-Brexit services. The rule is that the place of supply is the UK, i.e. where your client's business is located. They must therefore charge VAT at the rate appropriate to the type of service they provide.
Trap - Special rules continue to apply to some types of B2C services. For example, electronically supplied products such as internet downloads. The special rules treat the supplies as made where your client's customer belongs. If they are in the EU, your client may have to register for VAT in that country and charge foreign VAT. The EU's VAT website will be helpful to see if they need to register in an EU country.
The VAT "mini one-stop shop" used to allow your client to account for VAT charged on B2C electronic services to customers in the EU, but this is no longer available for post-Brexit supplies. This means they must register and account for EU VAT as already mentioned in the Trap above.
If you're unsure which of your client's services are affected by these special place of supply rules refer to HMRC's latest guidance for details.