HMRC Guidance On VAT Place Of Supply Of Services

In 2022, HMRC updated its VAT manual to clarify the rules surrounding the place of supply of services, reflecting significant changes in how VAT is applied. This recent update aims to provide greater clarity for businesses navigating the complexities of VAT on cross-border services. The new guidance outlines how to determine the place of supply for various services, impacting how VAT should be accounted for and reported. 

Understanding these changes is crucial for businesses to ensure compliance and avoid potential pitfalls. In this overview, we’ll delve into the key points of HMRC’s latest guidance on VAT place of supply of services.

An overview of HMRC’s update on VAT Place of Supply of services

In 2022, HMRC revised its VAT manual to provide clearer guidance on the place of supply of services, reflecting significant changes since the UK’s departure from the EU. This update aims to ensure that VAT is correctly applied, preventing issues like double taxation or non-taxation and ensuring fair competition.

The updated guidance clarifies that the place of supply—the location where VAT is applied—depends on whether the service is supplied to a business (B2B) or a non-business customer (B2C). For B2B supplies, VAT is typically accounted for where the customer belongs. If both the supplier and customer are UK-based, VAT is charged in the UK. Conversely, if the supplier is UK-based and the customer is outside the UK, the supply falls outside UK VAT jurisdiction. For B2C supplies, VAT is generally applicable where the supplier is based.

A critical aspect of the guidance is the treatment of establishments. The term “fixed establishment” refers to a location that plays a significant role in the supply of services, not merely a place where the business is registered. The recent update emphasises that a supply should be attributed to the establishment most directly concerned with the supply. This helps prevent tax avoidance by ensuring that businesses do not exploit different VAT treatments across member states.

The guidance also highlights considerations such as avoiding non-taxation scenarios, preventing competitive distortions, and resolving issues of double taxation or disputes between member states. It underlines the importance of using firm evidence to determine the appropriate establishment involved in the supply and directs businesses to consult the VAT Principles Team in cases of doubt.

Summary

HMRC’s 2022 update on VAT place of supply rules clarifies how VAT should be applied to services, addressing non-taxation, competition distortion, and double taxation issues. For B2B services, VAT is typically where the customer is based, while for B2C services, it’s where the supplier is located. The update focuses on correctly identifying the fixed establishment most directly concerned with the supply. 

Businesses should seek expert advice to navigate these complexities and ensure compliance with the latest VAT regulations. For tailored accounting solutions and VAT guidance, contact Braant today.