It is often easy to assume that only parties which live in the United Kingdom are required to pay UK value added tax (VAT). However, UK VAT is often paid by individuals, trustees and companies which are resident outside the United Kingdom but use the services of professionals which are based in the United Kingdom. The extent to which VAT is or is not chargeable has changed as a result of Brexit and the end of the transition period on 31 December 2020. This article considers the new post-Brexit VAT position.
From a UK supplier's perspective, an EU customer is now treated in much the same way as a customer in the United States or another non-EU country. In summary, this means that supplies to business customers, subject to various exceptions, continue not to attract VAT. There is even better news for EU non-business customers in that services from UK professionals will no longer attract VAT (subject to various exceptions – most noticeably, UK land-related services).
By way of an example, Mrs Jones is a senior banking executive who has been living in Frankfurt since June 2016 and owns the following UK assets:
- cash in a UK bank account that may be used to buy a development site in England in the name of either Jones Ltd (a company incorporated, centrally managed and controlled and therefore tax resident in Jersey) or Immobilen GmbH (which is tax resident in Germany);
- a holiday home in the Lake District (entirely used by Mrs Jones and her family); and
- a portfolio of shares in UK limited property investment companies.
Mrs Jones is tired of subsidising her son and wants to see him married off.
She incurs a number of professional fees in relation to the above and is pleasantly surprised that one of the invoices from her UK tax adviser for submission of her January tax return is not subject to VAT.
A summary of the possible VAT invoices issued on or before 31 December 2020 and on or after 1 January 2021, in respect of the professional services which Mrs Jones has used, is shown below.
|
Description of service (all suppliers are UK based) |
31 December 2020 |
1 January 2021 |
Comment |
|
Advice by property consultants to Jones Ltd regarding feasibility of buying property in the United Kingdom |
No UK VAT |
No UK VAT |
The general business-to-business (B2B) rule is that the supply takes place where the customer belongs. Land-related services are an exception to this rule, meaning that the place of supply is deemed to be the United Kingdom with UK VAT being charged. Her Majesty's Revenue and Customs guidance indicates that as this does not relate to a specific site, the service is not a land-related service and the general B2B rule applies (ie, no UK VAT). |
|
Advice by architects to Immobilen GmbH regarding feasibility of using a sustainable earth house construction technique in respect of a specific site in Cornwall |
UK VAT |
UK VAT |
The B2B rule displaced as the service relates to UK land (ie, the supply takes place in the United Kingdom) and so UK VAT is charged. |
|
Property investment portfolio advice to Immobilen GmbH |
No UK VAT |
No UK VAT |
The B2B rule applies as the service only indirectly relates to land, but Immobilen GmbH must consider the German VAT reverse charge. |
|
Fees charged to Mrs Jones for obtaining planning consent in the Lake District |
UK VAT |
UK VAT |
The general business-to-customer (B2C) rule (ie, that the place of supply is where the supplier belongs) applies. |
|
Accounting and tax advice charged to Mrs Jones's son who lives in the United States |
No UK VAT |
No UK VAT |
The general B2C rule is altered for recipients who belong outside the European Union. Here, the service is provided by consultants, lawyers or accountants (and does not relate to UK land). |
|
Accounting and tax advice charged to Mrs Jones |
UK VAT |
No UK VAT |
As of 1 January 2021 the general B2C rule has been altered so that for all recipients who belong outside the United Kingdom – where those services are supplied by consultants, lawyers, accountants or similar – there is no UK VAT. |
|
Matchmaking services to Mrs Jones in respect of her son |
UK VAT |
UK VAT |
This is a B2C service which is neither a consultancy service nor the provision of information and so continues to be within the normal B2C rules (Gray & Farrer International LLP [2019] UKFTT 684). |
Individuals living in the European Union may be more likely to query their UK VAT invoices, so suppliers must think carefully and ask themselves certain key questions:
- Where do their customers belong? Do they have evidence of this?
- Who are they supplying – a private individual or someone in business?
- What are they supplying – in light of Gray & Farrer, does it have intellectual gravitas?
