As we know, the UK will leave the EU on 1 January 2021. A lot of articles have, understandably, focussed on the movement of goods between the UK and the EU, however, there will be significant changes for suppliers and consumers of services. Some of these will be beneficial, and some, charitably, will be a royal pain.
In this article I have tried to summarise the most important changes. Compared to supplies of goods, the changes to services are more certain, so businesses can make preparations with more confidence.
The changes to services
- Currently, B2B supplies of services to EU recipients are generally UK VAT free (the customer accounts for VAT via a reverse charge). However, currently, for most B2C supplies UK VAT is chargeable. From next year, there is no need to distinguish between B2B and B2C supplies of services to EU recipients – all will be UK VAT free. Also, there will no longer be the need to differentiate EU and outside the EU customers. A UK business making such supplies will no longer be required to obtain its customer’s VAT number and quote this on the relevant invoice. All that is required is that there is evidence that the recipient belongs outside the UK. I understand that HMRC has announced that VATA 1994, Sch4A para 16 will be amended to bring the EU in line with the rest of the world (well, in VAT terms!)
- There will be no significant change to, inter alia; land, admission to events, digital and telecoms services which have special rules and fall outside the general VAT rule. Digital services (MOSS) changes slightly and are considered here.
NB: UK businesses will still be required to apply the reverse charge to services received from the EU as these will be VAT free when purchased.
- Reclaiming VAT incurred in the EU. Currently, a singe claim is submitted to HMRC for all VAT incurred in other Member States. This way of claiming will change post Brexit. A business will be required to submit a claim to each individual EU country in which it has suffered VAT. Broadly, this will be what is known as an EU Thirteenth Directive claim. These need to be done in the language of the relevant country and on specific forms. There will, inevitably be different rules for; deadlines, amounts claimable, methods of claim, information required and procedures. Experience insists that there will be a lot more red tape, rejections and hassle. Good luck!
- For various reasons, it is likely that more UK businesses will be required to VAT register in the EU. This may be via legal requirements, or commercial planning. As an example, a UK business supplying, say, telecoms services, may be required to register in a country where the supply is consumed (the so-called use and enjoyment rules). Each country has its own rules and some may apply the reverse charge procedure, but businesses supplying:
- telecommunications services
- broadcasting services
- electronically supplied services (for business customers)
- hired goods
- hired means of transport
- insurance repair services
will need to check the requirements of each Member State to which it makes supplies. Also, businesses in the EU making such supplies in the UK are likely to be required to register here.
- UK businesses suppling financial services (FS) to customers in the EU will benefit from the post Brexit changes. Currently FS providers to recipients outside the EU are able to recover attributable input tax. Similar services received in the UK and the rest of the EU are deemed to be exempt and there is no input tax recovery (for partial exemption see here), From 1 January 2021 as the UK will be a third country (third country refers to any country outside the EU, and in this case outside its economic structures – the single market and the customs union) so any FS supplied to EU recipients will qualify as “specified supplies” such that attributable input tax will be reclaimable. The legislation here: Value Added Tax (Input Tax) (Specified Supplies) (EU Exit) (No. 2) Regulations 2019. So, some rare good news. Full details of FS input recovery here and HMRC guidance here.
- It is likely that a UK business which is required or chooses to VAT register in an EU Member State will need to appoint either a formal agent or a fiscal representative. This requirement varies between EU countries, so a business will need to check the rules in each country. This will add complexity and costs. A fiscal representative is jointly liable for any VAT debts and penalties, so most entities acting as representatives will require a bank guarantee or similar to cover its exposure.
- EU businesses supplying certain services in the UK. There may be an increased requirement for overseas businesses to VAT register in the UK, regardless of whether they have a place of belonging here. Any EU businesses in this position requiring advice please contact me.
- TOMS. The Tour Operators’ Margin Scheme (details here) is an EU-wide arrangement which, broadly, simplifies VAT for tour operators. This is an area which remains uncertain. It is possible that the UK will negotiate a Brexit which does not disturb TOMS (increasingly unlikely I would say). But in a no-deal Brexit the government has announced that UK tour operators can continue to apply TOMS to UK holidays. However, supplies of holidays outside the UK will not be subject to VAT. This will put UK tour operators at an apparent advantage compared to EU competitors. However, it is likely that they will soon be required to VAT register in every EU country in which it sells holidays. Watch this space.
Commentary
A mixed bag of changes to businesses supplying services. It is crucial for all suppliers of services to the EU to review their position and put plans in action sooner rather than later. If you, or your clients, are unsure about these changes, or would like specific advice, please contact me. I can also offer a review of a business to advise on what planning is required, or beneficial. It is important to get this right as there could be significant penalties, back tax and other unwanted outcomes.