Will the Value Added Tax treatment of service change?

  • There are harmonised EU rules in relation to VAT on service provided from a business established in one EU state to a business or consumers in another EU state. The VAT treatment of the supply of services from the EU to the UK and UK to the EU will change in 2021. Each of the EU’s and UK’s systems of VAT will treat supply of service to and the receipt of services from the other in the same way as service provided into and from non-EU states at present.
  • The change in VAT treatment will depend on the nature of the cross border services provided and on whether or not the recipient is a business or consumer.  In some cases, for example, many business to business services,  the changes will not seem as significant as in other cases, for example, some services provided to consumers.
  • In some cases, it may be necessary for a business to register for VAT in the other jurisdiction, without necessarily having to establish a base or presence in that other jurisdiction. This may involve having to account for and undertake VAT returns to the revenue authority in that state.

Some Changes to VAT Rules

  • VAT is very complex and different rules apply to different categories of services. Businesses should consult their accountants or other tax advisers and consider whether there may change in relation to accounting for VAT on the cross services which they provide. They should review whether in the particular circumstances, this may necessitate registering for VAT in another jurisdiction.
  • In the cases of most business to business (B2B) cross border services rendered from the  EU to the UK  and the UK to the EU to VAT registered recipient, the supply is likely to remain zero-rated in the home state. Many of the current exceptions, for example relating to property services will remain similar. The relevant compliance, registration and return obligations will differ.
  • Similarly, in most cases, the position for the recipients of business services from business in the other territory will remain broadly similar in their effect. In most cases, the business recipient will be obliged to self-account for VAT. The accounting and compliance obligations will differ. There are exceptions, many of which are similar in effect to those that apply at present.
  • The more significant changes ay arise in relation to the supply of services cross border to consumers and businesses which are not registered for VAT  In some cases, home state VAT  will continue to be chargeable. In other cases, it will be necessary for the service provider to register for VAT in the host jurisdiction where the consumer/ non-registered VAT registered recipient is resident or established.
  • Certain EU wide rules which facilitate paying VAT in the home state of the business only will no longer apply. Certain categories of service will remain subject to VAT in the home state while others which are not subject to VAT in the home state, may become subject to VAT in the state of establishment of the recipient.
  • Careful consideration will need to be given to the VAT legislation in the home state and the country of supply. Businesses should consult their accountants or other tax advisers if they have any doubts about the position.
  • Special VAT rules apply to particular categories of services such as those connected with a particular place such as a construction site,  property, transport, digital services  and e-commerce. There are special rules for services that are used and enjoyed in a particular place, such as telecommunication and financial services.
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