As is natural given the unique position the NI protocol presents for goods, the VAT position on services has received less coverage in terms of the post Brexit implications. This article seeks to distil and clarify the VAT rules on services in this post Brexit world.

As the transitional period has now lapsed, both NI and GB will follow UK rules on services, unlike on goods where NI is still governed by EU legislation. As such, the UK Government has greater flexibility in terms of rule changes which may help encourage and attract inward investment in certain industries and sectors.

We have already seen evidence of this in the Chancellor’s 9 November 2020 statement to the House of Commons, in which he confirmed that from 1 January 2021, those in the financial services industry may avail of an increased VAT recovery on certain “specified supplies”.

Notwithstanding the greater autonomy in the services arena, the principal barrier for UK business in entering the EU market on services is generally regulatory in nature. The taxation position is generally less onerous given the complex rules which govern this space, which prevent double taxation throughout the EU.

With that in mind, the VAT place of supply rules for business to business and business to private consumer (B2C) supplies should remain largely unchanged, with the three main areas of change considered in greater detail below.

Digitised services

Businesses who provide digitised services to EU private individuals generally report these transactions through a MOSS return in the UK. The UK (including NI) will be a non-EU country following the end of the transitional period, therefore the MOSS return (which is an EU VAT return) will no longer be appropriate. This will leave the business with two options, either:

1. register for VAT in every EU Member State where these customers are located; or
2. register in an EU Member State to allow for the filing of a non-Union MOSS return.

Equally, an EU business supplying such services to UK customers would no longer report these through its MOSS registration but would need an additional registration in the UK to account for these supplies.

Use and enjoyment provisions

Certain services such as website hosting, the making available of an electronic database and the provision of software (note that other services are included under Schedule 4A of the VAT act 1994) provided to business customers require the supplier to understand where the services are ultimately used and enjoyed. The VAT place of supply may shift from where that EU business customer is located, to where the service is used in and around the EU (which may be different).

The result of this is generally additional overseas VAT compliance obligations and registrations. Failure to recognise this and comply with the associated rules could result in late registrations and VAT penalties being charged.

Businesses in this space should review the legislation to understand, firstly, whether the services provided are captured by use and enjoyment provisions and, secondly, understand the impacts and whether any actions may be taken to minimise any additional compliance burden.

Supply and installation of goods

The current VAT rules dictate that this is a supply chargeable to VAT in the local territory where the installation takes place. However, because of EU simplifications, where this is a UK to EU business transaction, the EU customer can generally account for this local VAT under the reverse charge mechanism.

However, this simplification may be lost as the UK is no longer an EU territory and, as such, businesses should consider and plan for these potential overseas EU requirements. Where overseas VAT registrations are triggered, businesses should seek to understand the local VAT compliance obligations regarding frequency of returns, whether fiscal representation is required, the payment deadlines etc.

The actual movement of the goods in these scenarios may also mean customs declarations are required depending upon the trade flow (historically, whilst part of the EU, this was treated as a single supply of services). It is therefore important to establish roles and responsibilities to ensure goods continue to move across what is now an international border (at least for EU to GB purposes).

Michael McNeill

Senior Manager – Belfast

Indirect Tax

T: 077 2506 8484

E: michael.m.mcneill@pwc.com