Changes to the Place of Supply of Services rules

Changes to the Place of Supply of Services rules for UK suppliers after 31/12/2020

Many services provided by UK businesses fall under the general Business to Business (B2B) or Business to non-business Consumer (B2C) rules for deeming where a service is supplied; a B2B supply would be considered to be made where the business customer belongs and so outside the scope of UK VAT, a B2C supply being deemed made where the supplier belongs and so subject to UK VAT at the appropriate VAT rate.

These general rules provide a ‘default’ position but there are some exceptions to these general rules, as discussed in relevant parts of VAT Notice 741A (.gov source);

• services that are related to land (section 7)
• services deemed to be made where performed (section 9)
• services deemed to be made where the customer uses and enjoys the service (section 13)
• supplies of certain professional, technical, financial, intellectual or other intangible services when provided B2C to customers based outside the EU (section 12)
• supplies of digital services (section 14).

The general B2B and B2C rules will not change after the end of the Brexit transition period but some of the above exceptions to the general rules will.

Changes to the “Use and Enjoyment” rules

Currently, if a UK business supplies a service that is one of those listed in section 13.1 of VAT Notice 741A and, following the ‘Use and Enjoyment” rules, the place of supply of that service is deemed to be:

• the UK but the service is effectively used and enjoyed outside the EU; or
• outside the EU but the service is effectively used and enjoyed in the UK

then the service will be deemed to be made where the service is used and enjoyed by the customer.

However, from 1/1/2021, where the UK supplier provides that same service, if that service is effectively ‘used and enjoyed’ outside of the UK then the service will be deemed to be made where it is ‘used and enjoyed’.

Changes to the rules for B2C supplies of certain professional, technical, financial, intellectual or other intangible services

Currently, and contrary to the general rule, B2C supplies of services as described through sections 12.3 – 12.11 of VAT Notice 741A are deemed to be made where the non-business consumer belongs if they belong outside of the EU.

Therefore, these services provided B2C to a customer outside the UK and EU will be outside the scope of UK VAT but those same services when provided to a customer in the UK or EU would be deemed made in the UK and therefore subject to UIK VAT, as appropriate.

However, from 1/1/2021, this exception will be extended to include customers who belong in the EU and so those supplies would be outside the scope of UK VAT when provided to any customer belonging outside the UK.

Changes to Digital Services

Currently, a B2B supply of digital services falls under the general B2B rule and so will be deemed made where the business customer belongs.

However, a B2C supply of digital services is deemed to be made where the non-business consumer belongs. IF that is in the EU then the supply is subject to the appropriate rate of VAT in the EU country in which the consumer belongs and most businesses will declare and pay this VAT using ‘Union VATMOSS’, which they access through the UK HMRC portal.

Although the rules on where the service is deemed made will not change after 31/12/2020, UK businesses will no longer be able to access ‘Union VATMOSS’ via the HMRC portal after 20/1/2021 and so must submit their final UK VATMOSS return within that time.

In order to continue to use the VATMOSS system to declare this EU VAT UK businesses will instead have to register for VAT in one of the remaining EU countries and then, through that portal, sign up for ‘Non-Union VATMOSS’.

From 1/1/2021 the £8818 (€10000) deminimus threshold for VATMOSS will also not apply to UK suppliers and so any business supplying digital services to consumers in the EU will have to register for both VAT and ‘Non-Union VATMOSS’ in a remaining EU country.

The guidance in the link below provides advice on this. (Source .gov)

Requirement for an EC Sales List

Currently, where a UK business supplies services under the general B2B rule to a business that is VAT registered in another EU country then the UK business is required to declare these sales to HMRC on an EC Sales List.

From 1/1/2021, this requirement will no longer be in place.