If the supply is deemed to have been made in the UK, it will subject to UK VAT, otherwise it is considered to be outside the scope of UK VAT. However, it may be subject to local taxes, so any obligation to register for local taxes should be considered where non-UK supplies of services are made.
There are different rules for supplies made on a business-to-consumer (B2C) basis versus a business-to-business (B2B) basis. B2C means to a private individual, charity, government department or other body that has no business activity, or an entity that receives the supply of services wholly for a private purpose. B2B supplies are, more simply, to other businesses. This can include entities that have both non-business and business supplies. One helpful tip is that if your customer can provide a VAT number (either UK or foreign) the supply can usually be considered to be B2B.
The general rules for place of supply are that B2C supplies are considered the be where the supplier belongs and B2B supplies have a place of supply where the customer belongs. However there are many exceptions to this, with a significant one being where supplies of digital services are made to non-UK consumers. The definition of ‘digital services’ is both broad and specific at the same time! HMRC have provided the following list:
Radio and television broadcasting services
- the supply of audio and audio-visual content for simultaneous listening or viewing by the general public on the basis of a programme schedule by a person that has editorial responsibility
- live streaming through the internet if broadcast at the same time as transmission by radio or television
This means transmission of signals of any nature by wire, optical, electromagnetic or other system and includes:
- fixed and mobile telephone services for the transmission and switching of voice, data and video, including telephone services with an imaging component, otherwise known as videophone services
- telephone services given through the internet, including Voice over Internet Protocol (VoIP)
- voice mail, call waiting, call forwarding, caller identification, 3-way calling and other call management services
- paging services
- access to the internet
It does not cover services just given over the telephone, such as call centre helpdesk services.
Electronically supplied services
These rules only apply to e-services that you supply electronically and includes things like:
- supplies of images or text, such as photos, screensavers, e-books and other digitised documents, for example, PDF files
- supplies of music, films and games, including games of chance and gambling games, and programmes on demand
- online magazines
- website supply or web hosting services
- distance maintenance of programmes and equipment
- supplies of software and software updates
- advertising space on a website
The above descriptions do not cover all the services provided, as this is a fast changing area. However, it does provide a helpful guide.
Based on the general rule, it may be reasonable to assume (and a number of businesses have!) that the supply of digital services to non-UK consumers would have UK VAT charged. This is not the case though, as if the consumer is normally based outside of the UK then the place of supply will be where the consumer is located.
For example, if a UK business is supplying digital services to consumers based in the EU they have one of two choices:
- register for the Non-Union VAT mini-one stop shop (MOSS) scheme. This scheme enables businesses to charge the appropriate rate of EU VAT to their customers, regardless of which EU member state they reside in. or,
- register for VAT in each EU member state where digital services are supplied. It may go without saying that these registration requirements can add up quickly, so the Non-Union VAT MOSS can be a helpful simplification tool if a business appears to have a wide exposure in EU member states.
There is no equivalent for this in non-EU countries, so local guidance should be taken as to if there is any obligation for a business to register for local taxes.
Where businesses believe they have overdeclared UK VAT in the past on these supplies, there may be scope for them to recover these amounts from HMRC. We have had some great success in the past helping to make these claims and to put measures in place to comply with EU regulations.