UK VAT - Place of Supply

Legislation governing the UK VAT (Value Added Tax) underwent fundamental changes effective 01 January 2010 as the UK implemented European Union's VAT Package affecting cross-border supplies of services. VAT is charged on goods and services. Generally, VAT is charged where the supplier is established (place of supply). This continues to be the case where supply of 'goods' is concerned. However, when it comes to supply of services the 'place of supply' rule changed radically from 01 January 2010. The change is still not applicable where the recipient of the services is not a taxable person in the UK. In other words in the cases of services supplied by a business to a consumer (B2C) the place of supply will continue to be where the supplier is established. The change is applicable and relevant only in respect of supplies made by an overseas business to a business based in the UK (B2B). In order for this 'place of supply' rule to apply the business in the UK must be a 'relevant business person' (practically all VAT registered businesses are affected). That said there are some interesting exceptions to the 'place of supply' rules as in the following services:

• Land related services - supplied where the land is located
• Restaurant and catering services - supplied where the services are physically carried out. For flight kitchen services these are supplied at the place of departure.
• Short term hire of transport - supplied where the vehicle is made available to the customer.
• Cultural, artistic, sporting, scientific, educational, entertainment and similar services - supplied where the activity takes place.
• Passenger transport - supplied where the transport begins.

As a consequence of this change most of the services provided from outside to VAT registered businesses established in the UK are treated as 'supplied' in the UK, and the business customers will need to account for VAT under the reverse charge mechanism. Called 'tax shift' reverse charge accounting is a mechanism where the customer acts as both the supplier and the customer - charge itself the VAT and then, assuming that the service relates to VAT taxable supplies that it makes, also claims it back. So there's no net cost to the business customer - VAT on purchases and assumed sales cancel each other out.

When a UK VAT-registered business supplies services to businesses established in another EU member country the place of supply is the customer's country. So the UK business will need to complete an EC Sales List (ESL) for each calendar quarter and submit it to HMRC within 14 days if filed using paper returns and 21 days when filed online. This is required to ensure that the business receiving intra-EU supplies of services is correctly accounting for VAT.

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