The Impact of Brexit on VAT on Services to the EU or UK

Understanding VAT on Services post-Brexit is complex. There are many changes made to VAT rules on services for both business-to-business (B2B) and business-to-consumer (B2C) VAT charges on services to customers in the UK and EU. To understand these changes, you must understand terms like ‘place of supply’ or ‘country of supply’ and how these impact your VAT charges and registration. The changes came into effect as of 01 January 2021, and you need to know how they will affect you moving forward so your business can remain compliant.

To learn more about paying VAT or the implications for managing VAT, read our post here.

You will charge your customers in EU countries 20% VAT on your products and services unless you go over the predetermined EU sales value threshold. If this happens, you must register for VAT in that country.

Understanding the Place of Supply Rules

The place of supply or country of supply is, in essence, the location from which you are supplying a service and where you may be charged VAT. Most of the services you provide overseas customers will be subject to the rules of their country – that is the country you are supplying your services to.

For example, if you are providing services to a company in Italy, then it would be considered the place of supply. How Italy determines VAT charges and payments will be how you pay and manage your VAT on services with that country. As a business, you need to include your business details on your invoices – VAT, letterhead, official documentation – so that any admin can be smoothly managed across both countries.

If you are providing a B2B service that falls outside the remit of VAT, you still need to include your sales to another country in your VAT return. It’s considered good practice to include the rules that apply to your invoice in that country on the invoice to your customer.

For example, if you are invoicing a customer in France, your transaction will be subject to the mandatory reverse charge obligation. Remind your customer of this obligation on your invoice so they can easily manage their admin.

If the company you are supplying your goods or services to is not part of the European Union (EU) or if they are based in the UK, the place of supply rule still stands. Any VAT or local tax charges remain the customer’s responsibility in that country. Essentially, the UK is considered a non-EU country for EU VAT which means that this rule applies to companies providing services into the UK.

In short – VAT is not charged on a B2B transaction to companies based outside of the UK, but it is charged to the recipients of a business transaction inside the UK.

For companies that provide a service to consumers, VAT regulations vary. If the services are supplied by a non-EU company, such as one in the UK, to an EU consumer, then VAT is not charged in the place of supply. However, certain service categories and goods are subject to different rules and regulations and will affect your VAT payments.

VAT Implications for Different Service Categories

Of course, there are always exceptions to every rule, and the following service categories have a very different set of rules applied to them. You need to be aware of how your company should approach VAT compliance if you fit into any one of the following categories:

1. Digital services: The VAT Mini One Stop Shop (MOSS) allows companies that provide digital services, including broadcasting and telecommunication services, to submit a single VAT return based on sales by the state of consumption, and UK companies are not allowed to use it since Brexit. If you are a UK digital services supplier, you must apply for the non-Union MOSS scheme in the relevant EU country.
2. Events: Physical events, sporting events, cultural events, and training events hosted by UK companies have to be VAT registered in the country where the event occurs. EU and UK suppliers may use the One Stop Shop (OSS) VAT return to facilitate this payment.
3. Land, property, transportation, restaurants, catering, freight: These services have no change to their VAT structure or admin.
4. Professional, consulting, financial services, data processing, advertising and technical services: UK VAT does not apply to these services, meaning that companies providing these services to the UK or the EU must register for VAT if they operate in the B2C space. This is known as the Special Rule and applies to EU and non-EU businesses.
5. Tour Operators. The Tour Operators Margin Scheme (TOMS) applies to tour operators based in the UK, with all travel services within the EU being zero-rated.

You can learn more about specific exceptions and VAT charges directly on the European Union website.

Ensuring Compliance in the Post-Brexit Landscape

You have to pay your VAT bill according to the deadline on your VAT return; it is usually one month and seven days after your last accounting period has ended. If you aren’t sure when you need to pay your VAT return, you should log into your online account with HMRC, as this will provide you with insight into when your VAT return is due, when payment must be made, and, if you’ve missed any payments, what penalties you need to pay.

You must also report your VAT on international transactions in your VAT return. This includes information across the total sales and purchases made to overseas customers, the total amount of VAT charged, and the total amount you can reclaim. If you miss a payment or are consistently late, you will be subject to penalties that will cost your business money.

Navigating Post-Brexit VAT Regulations

This can seem a daunting landscape to navigate, especially with so many different rules, clauses, sub-clauses and amendments to consider. If you want support with your post-Brexit VAT compliance, Blue dot was designed to make this process effortless and compliant. Blue dot’s VATBox solution makes it easy for companies to manage their VAT across multiple jurisdictions, currencies and regulations. We help you to optimise, manage and analyse your company’s global and local VAT recovery processes while allowing you to dodge unavoidable costs and accidental non-compliance. 

We have bolstered this with our in-depth series of tax technology education talks and articles where you can hear what the experts have to say about different global VAT developments.

With Blue dot, you can navigate VAT seamlessly while remaining compliant and without feeling overwhelmed by regulations.