We have now all had some time to see what Brexit means for the day-to-day running of our businesses. Many business owners struggled to get information about how the changes would impact on them, especially businesses who supply EU member states. Now we have had a few months of working in this new system, it is easier to see what impact the changes have had, and to make plans for the future.
VAT (Value Added Tax) was one of the main issues which needed clarity. There were questions around what levels of VAT would be applied to UK services going to the EU, who would be responsible for paying and how things would work once the UK left the EU VAT system. There are still some areas which are unclear, but here is what we know about the new VAT processes if you provide services to the EU.
Do we know the changes yet?
VAT is charged in many countries as a tax on goods or services received. Although the principle is the same, the rules can vary between countries – and particularly if you are providing goods or services to another country. Generally, a business will charge its customers VAT and then repay that to their tax authority.
The UK was a part of the EU VAT regime until Brexit occurred, which meant we shared a set of VAT regulations with other states in the EU – making trading and working out taxes between EU states much easier.
Since January, the UK has left that system and there are still questions as to how the issue of VAT will be resolved. The government could do anything from abolishing VAT completely to overhauling the whole system; however, VAT is now so entrenched that it is likely that rules around VAT will remain the same with perhaps a few minor changes.
Where is your place of supply?
To work out the VAT rules for any particular transaction, you need to know where the place of supply is. Generally, it is the place where that service is deemed to be being applied – for business-to-business services, it is normally where your customer is, and in business to customer transactions, it is where your business is. This can make a difference to where and how you pay VAT:
- UK to UK – If your business is based in the UK and you are supplying someone in the UK, the transactions will be subject to UK VAT. You need to charge the VAT due and let HMRC know.
- UK to the EU or elsewhere – This is ‘outside the scope’ of VAT, so you or your customer could be liable for VAT according to the tax rules of that country. There are many variables within this, depending on the goods being supplied and what the place of supply is deemed to be. If you are not sure of the rules for your particular business, check with an accountant.
Digital services for the EU
Digital services are one of those exceptions. There is a framework to help you work out the place of supply and whether you or your customer are liable to pay tax. Digital services include radio and television broadcasting services, telecommunications services and other electronically supplied services such as web hosting, software and digitised documents.
Before January, these services would have been covered by the rules in place for all EU member states. However, these services are now exempt from UK tax, but you may still have to pay tax to the country in which the service is being received. This is dependant on where your customer is, whether your service falls within the definition of digital (you can check this on the VAT section of the gov.uk website), and whether your customer is a private or business customer.
It is worth checking the rules for any country your business will be supplying, as you may have to register with the VAT system for that country. When you have determined the place of supply, you can go down one of two VAT routes:
- Register for the Non-Union VAT MOSS (Mini One Stop Shop) scheme in an EU member state
- Register for VAT in each individual EU member state where you supply digital services to customers
Once you have chosen which scheme best suits you and your business, you will be able to add the appropriate level of VAT to your invoices and pay VAT to the relevant countries without any problems.
The rules and changes as a result of Brexit are still emerging, and we know that they are having a big impact on some businesses. If you would like help or advice around VAT, trading with the EU or simply sorting out your business finances, get in touch, we are happy to talk. You can email firstname.lastname@example.org or call us on 01249 691360.