New scheme for selling services to EU consumers

Place of supply rules

For most business-to-consumer (B2C) services, the place of supply for VAT purposes is where the supplier is based. So, if a business is based in the UK, the starting point is that it must charge UK VAT to the EU customers. However, there are important exceptions to this rule. For example, the place of supply for most professional services is the customer’s country if the customer lives outside the UK. The rules are also different for “land services” and “performance services”. VAT Notice 741A has detailed guidance.

Performance services include admission to an event, as well as cultural, artistic, sporting, scientific, educational, entertainment and similar activities.

The place of supply for a land service always depends on where the building is located. So, for a UK plumber, working for a customer in Russia on a property the Russian owns in Ireland, the service is subject to Irish VAT.

Zero-registration threshold

Unfortunately, a business will not benefit from any local VAT registration threshold if it is providing B2C services where the place of supply is the EU, such as the plumbing work above. In other words, a zero-registration threshold applies, and it must register for VAT in that country if it makes any supplies there.

If it registers for VAT in an EU country, it will be able to claim input tax on any local expenses incurred on the returns it will submit.

The input tax claims will need to take account of any input tax blocks that apply in that country, similar to the block we have in the UK for business entertaining costs. For example, some EU countries apply an input tax block on road fuel costs, subsistence expenses, etc.

Register for OSS scheme?

A business might provide B2C services in many different EU countries: think of an opera singer doing B2C concerts in different countries as part of a tour. In the past, it would have needed to register for VAT in each separate EU country, which could require 27 registrations. However, since 1 July 2021, there has been another way, which is to register the business for the one stop shop (OSS) scheme in an EU country of choice, i.e. a single registration. It will then charge VAT according to the rate that applies in each country but declare this tax on a single OSS return that it will submit and pay each quarter. The OSS scheme is different to the import one stop shop (IOSS) scheme that applies to goods rather than services. With the IOSS scheme, returns are submitted and paid monthly rather than quarterly.

It makes sense to register for the OSS in Ireland because of the common language and the UK’s close links with that country. There is no scope to claim VAT paid on expenses on an OSS return. A business must make a separate claim directly to the country where the VAT was paid, known as a 13th Directive claim.