For VAT purposes, one of the first questions to ask when supplying services is where the supply takes place. This is known as the “place of supply”, and it determines whether UK VAT needs to be charged.
In simple terms:
• If the place of supply is in the UK, UK VAT may apply.
• If the place of supply is outside the UK, the supply is generally outside the scope of UK VAT.
Since 1 January 2021, following Brexit, the UK applies its own VAT legislation rather than the EU VAT Directive, although the place-of-supply rules for services remain largely aligned with the former EU framework. Unlike goods, these rules apply in the same way to both Great Britain and Northern Ireland.
The key practical takeaway is straightforward:
Always determine the place of supply first — the VAT treatment normally follows from that.
The General Rules
The starting point is found in Value Added Tax Act 1994 section 7A, which sets out two core rules depending on the type of customer.
Business-to-Business (B2B)
If a service is supplied to a business, the place of supply is:
Where the customer belongs.
This means that services supplied by a UK business to an overseas business customer are normally outside the scope of UK VAT.
However, this does not mean the transaction is free from VAT entirely. Instead, the reverse charge mechanism normally applies in the customer’s country.
Under the reverse charge:
• The supplier does not charge UK VAT.
• The overseas business customer accounts for VAT in their own jurisdiction as if they had supplied the service themselves.
• The customer may simultaneously reclaim that VAT as input tax if permitted under their local VAT rules.
Invoices for such supplies typically include wording such as:
“Reverse charge: customer to account for VAT in their country.”
Business-to-Consumer (B2C)
If a service is supplied to a private individual, the place of supply is:
Where the supplier belongs.
In many cases, this means a UK supplier would normally charge UK VAT when supplying services to private individuals.
Who Counts as a Business Customer?
For VAT purposes, a relevant businessperson includes someone receiving services for business or non-private purposes.
In practice, suppliers should obtain evidence that the customer is a business, such as:
• A valid VAT registration number
• Other commercial evidence showing the customer is acting in a business capacity
If adequate evidence is not obtained, the supplier may need to treat the customer as a private individual for VAT purposes.
Example: A UK Consultant with Overseas Clients
Consider a UK VAT-registered marketing consultant working with clients in France.
Scenario
• Client 1: A French company
• Client 2: A French private individual
Applying the general rule:
French company (B2B)
• Place of supply = France
• The supply is outside the scope of UK VAT
• The French company accounts for VAT in France under the reverse charge
French individual (B2C)
• Place of supply = UK
• UK VAT would normally be charged
However, certain professional services supplied to overseas individuals fall under a specific exception, which can shift the place of supply to where the customer belongs.
Where Does a Business “Belong”?
Determining where the customer belongs is another important step.
A business is generally considered to belong where it has:
- A business establishment, or
- A fixed establishment, or
- If neither exists, where the person normally lives or resides.
Exceptions to the General Rules
Although the B2B/B2C rules provide the starting point, a number of services follow specific place-of-supply rules. These are contained in Schedule 4A of the Value Added Tax Act 1994.
Some commonly encountered examples include:
Services Related to Land
The place of supply is where the land is located.
Example:
A UK architect designing property overseas would normally have an overseas place of supply, meaning UK VAT would not apply.
Passenger Transport
The place of supply is where the transport takes place.
Where a journey spans several countries, the supply may need to be apportioned between jurisdictions.
Restaurant and Catering Services
The place of supply is where the service is physically performed.
For example, if a UK caterer provides services at a wedding in Italy, the place of supply is Italy, not the UK.
Hiring of Goods and “Use and Enjoyment”
The normal rule may be adjusted depending on where goods are actually used and enjoyed.
For instance, if equipment is hired by a UK business but used entirely in another country, the place of supply may shift outside the UK.
Professional Services to Overseas Individuals
Certain professional services supplied to non-UK private individuals follow a special rule. These include services such as:
• Legal services
• Accounting services
• Consultancy
• Advertising
• Intellectual property services
In these cases, the place of supply is where the customer belongs, even though the customer is not a business.
As a result, the supply may fall outside the scope of UK VAT.
Final Thoughts
While the general B2B and B2C rules provide a useful starting point, VAT place-of-supply rules can become more complex once exceptions and “use and enjoyment” provisions are considered.
In practice, identifying:
• the nature of the service,
• the status of the customer, and
• where the customer belongs
is usually the key to determining the correct VAT treatment.
For cross-border B2B services, it is also important to consider whether the reverse charge mechanism applies in the customer’s jurisdiction.
Caveat
The above provides a simplified overview of the UK place-of-supply rules for services. VAT outcomes can depend heavily on the precise facts of each transaction, and additional rules or exceptions may apply in specific circumstances. Professional advice should usually be considered before relying on a particular VAT treatment.
