Are you supplying services, including the hire of goods, that are ‘used and enjoyed’ in the UK, where your customer is located outside of the UK? Or do you supply services to customers that are used and enjoyed in the EU? If so, you will need to consider whether specific EU and UK laws apply.
Before 1 January 2021, these rules did not apply where the services were used and enjoyed within the EU, or where the customer belonged in the EU.
The EU, as well as a number of other countries, has VAT and local sales tax rules to prevent double or non-taxation. These rules shift the place of taxation of certain services from the standard basis of where the customer belongs for business-to-business services and where the supplier belongs for business-to-consumer services to where the services are physically used and enjoyed.
What falls under the UK measures?
In the UK, the services that can be taxed where they are used and enjoyed are the letting on hire of goods, including the hire of means of transport, broadcasting services and certain services to business customers (telecommunications and electronically supplied services).
Now the UK has left the EU, these rules have wider application as the test is now limited to the territory of the UK, rather than the EU. Therefore, the place of supply (where the VAT or local sales tax is due) shifts where the place of supply would be:
- The UK, but the services are effectively used and enjoyed outside the UK; or
- Outside the UK, but the services are effectively used and enjoyed in the UK.
Where such services are supplied by a non-UK business (including EU businesses) to customers outside of the UK, but where these services are effectively used and enjoyed in the UK, qualifying supplies are likely to be subject to UK VAT. Prior to 1 January 2021, for services used and enjoyed in the UK, EU businesses only need to be concerned where the customer belonged outside of the EU. The scope for EU businesses to be registered and accounting for UK has now widened.
What about UK suppliers and the EU?
UK businesses and other non-EU businesses trading with customers in the EU, or where services are consumed in the EU, need to assess whether there are use and enjoyment rules in each member state where their activities are consumed. The UK supplier may be required to register and account for local VAT in that EU member state.
A service is normally regarded as being used and enjoyed where the customer physically consumes and benefits from the service. This could be where the customer is when they:
- Use hired goods, including means of transport;
- Watch a live broadcast;
- Purchase downloaded information over the internet for use at a specific site (business-to-business only); and
- Make a telephone call (business-to-business only).
The application of the rules varies across member states, and it is something Saffery, via our fellow Nexia member firms, can advise on.
Potentially, services that were wholly outside the scope of UK VAT may now be, at least partly, taxable in the UK if a customer has an establishment in the UK that is partly using the service (for example a global software licence with users in multiple countries).
Find out how we can help you by contacting one of our experts: Sean McGinness, or John Butterfield.