VAT on services supplied to overseas customers

If the customer is overseas then the VAT rate on the sales invoice depends on the place of supply.

B2B: Customer is a business

The place of supply will usually be the customer’s location.

If the customer is within the EU then the invoice will have 0% VAT but will be subject to the reverse charge. The customer’s VAT number should be obtained and noted on the invoice. It can be verified at the VIES website. The sales invoice should also mention that “this invoice is subject to the reverse charge”.

If the customer is outside of the EU then the supply is outside the scope of VAT and no VAT is charged, but the reverse charge won’t apply. (for Xero software, shouldn’t use “no VAT” as the sales tax rate otherwise the sales won’t appear in Box 6 net sales).

If the customer doesn’t have a VAT number, then proof should be obtained to show that they are a genuine business.

B2C: Customer is not a business

The general rule for B2C supplies of services is that the place of supply is where the supplier belongs, irrespective of the location of their customer. So for a UK business, UK VAT at 20% has to be charged for customers living in the UK or within the EU.

But there are special rules for digital services which may need to be dealt with under VAT MOSS.

Also, if a B2C customer is located outside the EU, then no VAT needs to be charged if the following services are supplied:

  • transfers and assignments of copyright, patents, licences, trademarks and similar rights
  • acceptance of any obligation to refrain from pursuing or exercising a business activity
  • advertising services
  • services of consultants, engineers, consultancy bureaux, lawyers, accountants, and other similar services – data processing and provision of information, other than any services relating to land
  • banking, financial and insurance services
  • the provision of access to, or transmission or distribution through, natural gas and electricity systems and heat or cooling networks and the provision of other directly linked services
  • supply of staff
  • letting on hire of goods other than means of transport
  • emissions allowances

But care needs to be taken if the service is not clearly/definitely one of the above, as there have been court cases where businesses didn’t charge VAT but should have done and so faced large bills. For example, “consultancy” is not as straightforward as it sounds due to case law.