Much of the commentary on the VAT changes arising from the end of the Brexit withdrawal period relates to the movement of goods between the UK and EU and vice versa. While they are not extensive, there are also some changes to the VAT treatment of services provided by professional services firms.
The main area of change relates to the invoicing of international customers, but there are also some changes to certain VAT administrative obligations.
Generally, most of the UK's VAT rules applicable to organisations providing services remain unchanged by the end of the Brexit withdrawal period. Specifically, there were no widespread changes to the place of supply provisions (rules that determine the country in which VAT is to be paid) or rates of VAT.
One area of change is in relation to supplies of services to individuals resident in the EU. From 1 January 2021, organisations should find getting the correct VAT treatment easier as there is no longer a need to distinguish between customers resident in the EU and outside of the EU. Whilst there remains exceptions (such as for services directly related to land), the general rule is that professional services (such as legal and consultancy services) supplied to customers outside of the UK will be outside the scope of UK VAT. For organisations working with private clients this is likely to be seen as a positive development as under the ‘old’ rules UK professional services firms charged UK VAT on these services, which would have been a cost to their clients.
There are no transitional rules, so the VAT treatment of the services is to be determined solely by whether the ‘tax point’ is before or after 1 January 2021. Note that care should be taken when invoicing for work that was completed in 2020 but only being invoiced for in 2021; in this situation the ‘new’ rules may not apply, meaning that UK VAT will be due because there may be a ‘tax point’ in 2020 when the work was completed. Professional advice to confirm the correct VAT treatment is recommended.
UK firms that operate through branches in the EU will need to identify whether it is the UK or EU establishment that is most closely connected with the services provided to the client. This will then determine whether the supply is subject to UK or EU VAT rules. The same is also true when establishing whether a purchase should be reported in the UK or EU VAT return and a reverse charge applied. Brexit does not impact on the ‘most closely connected’ principles, but it is perhaps more relevant now that the Brexit withdrawal period has ended and UK firms are assessing whether they need an EU presence.
The end of the Brexit withdrawal period has resulted in a number of changes to the UK VAT rules and organisations will need to adapt to new VAT accounting arrangements. Whilst the changes are generally not significant for professional services firms, we still recommend that organisations review their sales and purchase transactions and administrative processes to ensure that any changes to the VAT rules have been identified. This will help guard against unexpected costs.
For further information on the changes arising from Brexit and how they apply to you, please contact Robert Marchant or any member of the Crowe VAT team.