Vat on Legal Services after Brexit
Since 1 January 2021, all digital services for consumers in EU Member States are subject to VAT in the consumer`s Member State. The annual threshold of GBP 8 818 for cross-border sales of digital services to EU consumers no longer applies. When selling goods or services, the “place of delivery” of the sale determines how you treat the sale for VAT purposes. Businesses outside the UK must declare the sale of digital services to UK consumers by registering for VAT in the UK and reporting sales via a UK VAT return. The UK VAT MOSS was an online service that allowed EU businesses selling digital services to consumers in other EU Member States to declare and pay VAT through a single return and payment in their home Member State. Certain types of products and services are subject to special rules that modify the above treatment. Overall, where services are substantially linked to the State of destination or are used and appreciated, VAT may be payable. Their application will be different in some cases before and after Brexit as regards deliveries by Irish traders to UK businesses and consumers and deliveries by UK traders to Irish businesses and consumers. They are discussed in detail in other sections. *It should be noted that B2C supplies of legal services are currently not taxed. This is an unintended effect of Brexit that is likely to be corrected by the EU. It is important that you keep abreast of changes in this area to minimize risk. Check what types of services are treated as deliveries, where the customer belongs.
Even in the case of a supply by a UK supplier to a company located in another EU country, the general situation is that VAT is levied in that country and is payable by the business customer/recipient of the service. Again, there is no enrolment threshold for services received There is no registration threshold for services received. If a company receives services from abroad for business purposes (both from the European Union (EU) and from outside the EU), it may need to register and pay value added tax (VAT) in the state. In these circumstances, you are considered the service provider for VAT purposes. Instead, VAT liability is transferred to the EU customer under reverse charge rules, which ensure that the tax is collected in the EU country where the services are used. UK businesses will no longer be able to use the MOSS VAT system in the UK and the current EU-wide VAT threshold for providing digital services to consumers will no longer apply to UK businesses. This means that EU VAT will be due on all digital services to EU consumers, regardless of the value of sales. More information on how to register for the non-Union MOSS is available on the European Commission`s website and how to pay VAT on the sale of digital services to EU consumers from 1 January 2021 on gov.uk.
HMRC has also updated the VAT guidance on the supply of digital services and MOSS VAT. However, special rules apply to certain types of B2C services. Find out how to pay VAT when selling digital services to the EU. This publication is available at www.gov.uk/government/publications/accounting-for-vat-on-goods-moving-between-great-britain-and-northern-ireland-from-1-january-2021/accounting-for-vat-on-services-between-the-uk-and-eu-member-states-from-1-january-2021 This guide explains how VAT is collected and accounted for on services from the UK to the EU. If you supply services that are treated as supplies from the UK to consumers outside the UK, your services will be supplied where your customer belongs and therefore do not fall within the scope of UK VAT. The existing rules for imports from third countries now also apply to imports from the EU, but with some changes. The government introduced “deferred accounting” for import VAT on goods imported into the UK from 1 January 2021. This means that in the UK, VAT companies importing goods into the UK can claim import VAT on their VAT return instead of paying import VAT at the UK border or shortly thereafter. For more information about B2B and B2C services, see Invoicing VAT on services. For more ICAEW resources, see icaew.com/brexit If a service provider currently supplies services to a non-trader/consumer in another EU country, VAT is usually levied in the supplier`s country. No VAT is levied in the other EU country. In some cases, the supplier in the country of origin may need to register in that country and pay VAT.
After Brexit, the general situation will be such that if an EU company provides services to an individual/consumer in the UK, VAT may or may not be levied in the EU country (or the UK) depending on the type of service. In the event that the supply of services by a UK (non-EU) supplier to a non-entrepreneur/consumer is generally not collected in the EU, VAT is not due in the state of the business. There are exceptions. In the case of B2B, the place of supply of services is the place where the company receiving the service is established. If you receive services from a UK-based company after the transition period, Irish VAT on the services will normally be due. In the United Kingdom (including Northern Ireland), different rules on the place of supply of services apply to value added tax (VAT) on services. After Brexit, the UK will be treated as a third country for EU VAT purposes, so the following treatment applies, which applies to non-EU services, whether internally or externally. Similarly, UK VAT rules will be the same in each individual case as those applicable to a transaction with a supplier, customer or consumer from non-EU countries (now outside the UK).
EU countries will be a different country for UK VAT purposes. Well, Brexit is now a reality. Many of our clients in the legal sector ask what this means for UK-registered firms selling services to overseas clients. In the case of B2C services, the place of supply of services is usually the place where the service provider is established. The corresponding item applies to services imported by UK companies with UK VAT which is not the case for the business customer under the reverse charge mechanism. UK companies no longer have to fill out a CE sales list when providing services to EU-based companies. UK companies operating in the EU through branches must determine whether this is the UK or EU establishment most closely linked to the services provided to the customer. This will determine whether the supply is subject to UK or EU VAT rules.
The same applies to determining whether a purchase is declared in the UK or EU VAT return and a reverse charge mechanism applies. Brexit has no impact on the “most closely related” principles, but it may be more relevant now that the Brexit withdrawal deadline has expired and British businesses are debating whether they need a European presence. In particular, for non-land legal services, the Value Added Tax Act 1994 overrides the place of supply rules for B2C transactions, so that the supply of these non-land legal services by a UK lawyer to a non-commercial client in the EU (or another third country) does not fall within the scope of UK VAT. For UK businesses providing insurance and financial services, the VAT deduction rules have been changed from 1 January 2021, as supplies that were previously exempt will no longer fall within the scope of recovery and will therefore be aligned with existing rules for the provision of these services to customers outside the EU. The situation with regard to VAT on services is complicated and depends on the service in question. The position is discussed in detail in other sections of this website. If you provide legal services to a non-professional client based outside the UK but related to a property in England, this will be considered a domestic sale in the UK as the property is located in the UK. Therefore, your customer will be charged 20% VAT on the invoice.
Conversely, if you supply services related to real estate in an EU Member State, you may be required to register for VAT in that Member State. From 1 January 2021, the margin for declared travel services provided within the EU will be set at zero, in line with the current treatment of services provided outside the EU. The margin over UK margins will continue to be taxed at the standard rate. The EU has become a “third country” and the rules on the place of supply of services generally apply as if service providers for an EU customer were applicable to a third-country customer (a consumer outside the EU). The supply of B2B services between the UK and the EU therefore does not fall within the scope of UK VAT. Businesses wishing to continue using MOSS must enrol in the scheme no later than the 10th day of the month following their first sale after the UK`s withdrawal from the EU. For example, register before February 10, 2021 if a sale takes place in January 2021. If you sell EU digital services to the UK, you will need to register and pay VAT. Although every effort has been made to ensure the accuracy of the information contained in this article, it does not constitute legal advice and cannot be relied upon as such. The Law Society accepts no responsibility for liabilities arising from reliance on the information provided. VAT on services is generally levied when a VAT-registered supplier (or a supplier who should be subject to VAT because it exceeds the relevant annual turnover thresholds) supplies a service.
VAT may also apply in another country where the services are supplied. In some cases, the (Irish) supplier in the country of origin may need to register for VAT in the country of delivery.