VAT on sevices

New VAT rules - Notice 741A

New VAT rules were introduced on 1st January 2010 relating to the provision of services as well as the supply of goods. Details of these rules are contained in Notice 741A available on the UK HMRC website.

The VAT rules make a general distinction between Business (B2B) and Private (B2C) customers to determine what VAT is due and where it should be accounted for.

The general rule for B2B transactions is that where VAT is due, it is due in the country where the business customer 'belongs'.

The general rule for B2C transfactions is that the service is deemed to be supplied in the country where the supplier 'belongs'.

Where the service is consultancy (see 15.5 pt 4 below) the place of supply is where the customer (whether B2B or B2C) 'belongs'.

Where the service involves the recording of data which is subsequently processed elsewhere (eg UK) of involves work on movebale objects (eg boats) the place of supply can alternatively be determined on a 'where performed' basis (see 8.1.1 & 8.1.2 pt 3).

Our Treatment of VAT

For Gablemarine, our CE marking service involves separate inspection and processing stages, often in different countries and is treated on a 'where performed' basis. We take the same approach for work undertaken on boats. For other consultancy services, eg advice, RCD exemption certificates, the place of supply is based on where the customer 'belongs'.

We only charge VAT where the place of supply is the UK and thus falls within the scope of UK VAT. Where the place of supply is another EU country or outside the EU we are not required to charge VAT on services. Where a business customer based in the EU provides a valid EU VAT number then we are obliged to make an entry in the EC Sales List for that VAT quarter. In other instances, there is no requirement to make an entry in the EC Sales List. In all cases, the value of pre-tax amount will be added to the sales figure (box 6) recorded on the VAT return.

Where we assist in the sourcing of boats, the import and arrangement of shipping and delivery these services are treated as consultancy services and thus only subject to VAT if undertaken in the UK for customers who 'belong' in the UK for VAT purposes.

If you are not based in the UK the chances are you won't be charged VAT irrespective of the service received from us.

This interpretation of Notice 741A was discussed and confirmed with an HMRC advisor on 1/4/2010.

Private Customers

RCD Compliance Services

Using the 'where performed' approach, the place of supply is where the service (inspection) is carried out and is only subject to UK VAT if within the UK. Inspections undertaken in other EU countries or outside the EU fall outside the scope of UK VAT. No VAT is charged and details of such services will not be recorded in the quarterly EC Sales list.

Other Services & Parts

If the service is consultancy related the place of supply will be where the customer 'belongs'. If in the UK, then UK VAT will be charged. If outside the UK then no VAT is charged.

If the service is not consultancy but is not clearly 'performed' outside the UK, then the place of supply will be where the supplier (ie Gablemarine) 'belongs'. As Gablemarine is based in the UK, such services will be subject to UK VAT. We do not envisage providing many services of this type.

If the service involves work on moveable goods,(for example to undetake modifications to a craft to meet RCD compliance requirements, then the place of supply will be 'where performed'. So for example, if a UK client asks us to modify a craft in the US the place of supply is the US and no VAT is due. See 8.1.1 row 2 below.

Business Customers

RCD Compliance

Until 1 January 2011 the place of supply is as for Private Customers (B2C), i.e. where the service (inspection) is carried out and is only subject to UK VAT if within the UK. Inspections undertaken in other EU countries or outside the EU will not be charged VAT. Details of such services will not be recorded in the quarterly EC Sales list.

After 1 January 2011 the place of supply will be deemed to be where the business customer 'belongs'. This implies that if Gablemarine undertakes a CE inspection in France, for a business based in the UK then UK VAT will be due after 1/1/11.

Other Services & Parts

As for B2C above except that where a B2B service involves work on moveable goods (eg boats) the place of supply is related to where the B2B customer 'belongs' rather than 'where perfomed' . This is significant if a UK dealer asks for modifications to be performed on boats in the US as such services would now be liable to UK VAT.

If the place of supply is outside the UK no VAT is charged.

If the service is supplied in the EU and the customer has a valid VAT number then the transaction is recorded in the EC Sales List. If not, then no entry is made.

Extracts from HMRC VAT Notice 741A (January 2010)

Unlike notices of old, HMRC now appear to use copywriters who write English which even the layman can comprehend. Though a long document the text is actually quite readable.... Here we include only thos extracts pertinent to the discussions above. More, should you wish to indulge yourself, is available on the HMRC website.

5.2 What is the B2B general rule for supplies of services?

If you supply B2B services, other than those covered by the special rules described in the other sections of this notice (eg 8.1.1/2), the place of supply of your services is the place where your customer belongs for the purposes of receiving your supply (see section 3).

This is known as the B2B general rule. If you supply services that fall under this section and your customer belongs outside the UK, your supply is outside the scope of UK VAT. If your customer belongs outside the EC there may be local taxes which apply.

If your supply is taxable at a standard or reduced rate of VAT (that is to say that the supply is not exempt or zero-rated) and is made to a customer belonging in another Member State who is VAT registered there, with effect from 1 January 2010 you may need to complete and submit an EC Sales List. See Notice 725 The single market.

If however, your customer belongs in the UK, you must account for any UK VAT due.

Gablemarine : B2B services supplied to customers based in the UK are subject to UK VAT. B2B Services supplied to customers outside the UK, but within the EU fall outside the scope of UK VAT and are thus not subject to UK VAT. In cases where an EU B2B customer based outside the UK has a valid EU VAT number then no VAT is chargeable, but details of the transaction should be recorded on the querterly EU Sales List. If the EU B2B customer does not have an EU VAT number then VAT at the rate for the EU country where the B2B customer belongs should be applied ? - But who collects this and how?

5.3 What is the B2C general rule for supplies of services?

If you supply B2C services, other than those covered by the special rules described in the other sections of this notice (eg 8.1.2), the place of supply of your services is the place where you belong for the purposes of making your supply (see section 3).

This is known as the B2C general rule. If you supply services that fall under this section and you belong in the UK, you must account for any UK VAT due, no matter where your customer belongs.

Gablemarine : This general rule applies to other services but not we believe to our CE marking inspection services where the place of supply is 'where performed' (see 8.1.2 below), in these cases the location of the inspection.

8.1.1 Table 3 Changes effective from 1 January 2010 and 1 January 2011

Sevice Description

Place of supply from 1 January 2010

Services of work on, or valuation of moveable goods; and

ancillary transport services.

B2B supplies are subject to the B2B general rule. See section 5.

B2C supplies are made where the services are physically performed.

Services relating to cultural, artistic, sporting, scientific, educational, entertainment or similar activities (including fairs and exhibitions); and

ancillary services relating to such activities, including services of organisers of such activities.

B2B and B2C supplies are made where the services are physically carried out.

B2B supplies are subject to the B2B general rule and the place of supply is where the customer belongs. See section 5.

B2C supplies are made where the activities actually take place.

Gablemarine - In conjunction with 8.1.2 below we believe the inspection of craft for RCD compliance can be treated as a scientific service under 8.1.1 and that the place of supply (8.1.2) is where the inspection is performed. Additionally, where works are undertaken on craft we believe these fall into the category of 'work on moveable goods' for the purpose of determining place of supply.

8.1.2 Examples of services supplied 'where performed'

If you supply these services you should look carefully to see if your supplies are subject to the new B2B general rule, unless your supplies are of admissions services or services related to admissions in which case this section applies. If you make B2C supplies of these services table 3 in paragraph 8.1.1 shows whether your supplies will be affected by the changes effective from 1 January 2010 and 1 January 2011.

Scientific services of technicians carrying out tests or experiments in order to obtain data. The final compilation of your record of results, carried out in the UK, will not make the supply liable to UK VAT provided your services were otherwise performed outside the UK.

Gablemarine : We believe this covers the inspection of craft to document compliance with the requirements of the Recreation Craft Directive 2003/44/EC. The fact that the technical file is prepared and submitted in the UK does not make the UK the place where the service is performed and as a result UK VAT is only due when the inspection takes place in the UK.

15.5.2 What are services of consultants and consultancy bureaux?

Services of consultants and consultancy bureaux cover the normal services of experts in all professional areas who act in an accepted professional or advisory capacity. Examples include:

research and development
market research
written translation services or interpreters’ services which do not take place at an event, such as interpreting services for a telephone conference. See section 8 for oral interpreting at an event
testing and analysis of goods (for example, drugs, chemicals and domestic electrical appliances). The essential nature of such services is analysis by experts who use the results of the testing to reach a professional conclusion, such as whether goods meet specified standards
writing scientific reports
production of customised (‘bespoke’ or ‘specific’) computer software, excluding digitally downloaded software, as well as the services of adapting existing packages. However, some ‘off-the-shelf’ software packages are treated as supplies of goods, and
software maintenance involving upgrades, advice and resolving any problems. The place of performance is not relevant as solutions may be provided by telephone conversations, remote links or attending a mainframe site. However, a contract for simply maintaining computer hardware relates to work on goods. See section 8.

Gablemarine : This section is applicable for general consultancy and makes the place of supply equal to where the customer 'belongs'.