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Land-related services and the place of supply rules

Recap - place of supply

The place of supply rules determine where a supply of services takes place for VAT purposes. In general, the place of supply depends on the status of the person paying for the services. If they are an individual, the place of supply is the location of the supplier. If they are a business, the place of supply is wherever the customer is located. This has important consequences for VAT.

Example 1. You write a computer software application for a business customer in France. The work is carried out in the UK by your VAT-registered business. The rules mean that you do not need to apply output tax as the supply is outside the scope of UK VAT. Instead, your French customer will need to account for VAT under the reverse charge provisions.

Example 2. You undertake some consultancy work for a non-business customer in Portugal. You must charge output tax as the rules determine the supply to take place in the UK.

Exception to the rule

The rules are different for services which are land related. The place of supply is where the land is physically located - the location and business status of the customer is irrelevant in most cases. “Land” does not just mean land in the ordinary sense of the word, but also includes buildings and any item, equipment or machine permanently installed in a building or construction. The supply and installation of doors, windows, staircases or lifts would constitute land-related services. The construction, alteration or maintenance of a building or civil engineering work would also be included.

These are fairly obvious examples of land-related services, but HMRC gives a number of examples of other services which are included in the definition, such as surveying, valuing, property management services for the owner and legal services work. It is important to understand that the rules only apply to services which are “directly” related to land. Services which are indirectly related revert to the general rules.

Tip. HMRC’s example list of indirectly related services can be seen at Para 7VAT Notice 741a (see The next step ).

Avoid a trap

One potential problem that is easy to overlook is that you may have to register for VAT in another member state.

Example. You deal with the conveyancing of a French property for a USA-based business customer, and mistakenly assume that the supply is outside the scope of UK VAT. In fact, you will need to register for VAT in France, and charge the US customer French VAT.

Tip. If you make supplies that are deemed to take place in other EU member states, make sure you do register, or you could be charged penalties and interest, and you will also be expected to make good the VAT that should have been charged. You have to register even if your supplies don’t exceed the VAT threshold.

For a link to VAT Notice 741a, visit http://tipsandadvice-vat.co.uk/download (VA 08.06.02).