Do I Charge VAT When Selling Services to Overseas Customers?

Selling services to customers outside the UK can create some surprisingly complicated VAT questions.

If you’re a UK VAT-registered business, you might assume that because you’re based in the UK you simply charge UK VAT on everything you sell.

That isn’t necessarily the case.

For services, one of the key concepts is the place of supply.

The place of supply determines which country’s VAT rules apply to the transaction and, importantly, whether UK VAT should be charged at all.

For most services there are two general rules:

Business to business (B2B): the place of supply is where the customer belongs.

Business to consumer (B2C): the place of supply is where the supplier belongs.

But there are a number of important exceptions, so you need to establish exactly what service is being supplied before applying those general rules. GOV.UK

What Does “Place of Supply” Mean?

The place of supply is the country in which a service is treated as being supplied for VAT purposes.

If the place of supply is the UK, the transaction may be subject to UK VAT.

If the place of supply is outside the UK, the transaction is generally outside the scope of UK VAT.

That does not necessarily mean there is no VAT or similar tax to consider at all.

There may be an obligation on either you or your customer to account for tax in the customer’s country, depending on the local rules. GOV.UK

Selling Services to an Overseas Business

Let’s start with a UK business selling services to another business overseas.

Under the general B2B rule, the place of supply is where the customer belongs.

For example, suppose a UK VAT-registered consultancy provides services to a business based in the United States.

If the normal B2B rule applies, the place of supply is the United States because that is where the customer belongs.

The service is therefore outside the scope of UK VAT and the UK business would not normally charge UK VAT. GOV.UK

Depending on the country involved, the overseas customer may have to account for local VAT or an equivalent tax under a reverse-charge mechanism.

That is something that needs to be checked under the rules of the customer’s country.

Make Sure Your Customer Really Is a Business

This is an important practical point.

If you’re treating a supply as B2B and therefore not charging UK VAT, you should retain evidence that the overseas customer is genuinely in business.

For an EU customer, a VAT registration number can be strong evidence.

If they do not have a VAT number, other commercial evidence may be acceptable.

If you cannot establish that the customer is acting as a business, HMRC says the transaction should generally be treated as B2C instead. GOV.UK

So don’t simply assume somebody is a business because they have a company-sounding email address.

Keep appropriate evidence.

Selling Services to an Overseas Individual

This is where the general rule changes.

Under the general B2C rule, services supplied to a private individual are treated as supplied where the supplier belongs.

So if you’re a UK business supplying a service to an overseas private individual, the general rule says the place of supply is the UK.

That would normally mean charging UK VAT if the supply itself is taxable. GOV.UK

But this is also where you need to be particularly careful because there are some major exceptions.

The Exceptions Can Completely Change the Answer

Before applying either general rule, you need to ask:

What exactly am I supplying?

Certain services have their own place-of-supply rules.

For example, HMRC has special rules covering areas including:

• Services relating to land
• Events and admissions
• Restaurant and catering services
• Work carried out on goods
• Digital services
• Certain intermediary services
• Some professional, technical and consultancy services

That means you cannot determine the VAT treatment purely by asking whether the customer is a business or an individual. GOV.UK

Professional and Consultancy Services to Overseas Individuals

This is a particularly important exception.

Certain professional, technical, financial and intellectual services supplied by a UK business to a non-UK private customer are treated as supplied where the customer belongs.

HMRC’s list includes services such as:

• Consultancy
• Engineering
• Legal services
• Accountancy
• Certain data-processing and information services
• Advertising
• Banking, financial and insurance services
• Supply of staff

So, for example, a UK consultant providing qualifying consultancy services to an individual who belongs outside the UK may not have to charge UK VAT, even though the normal B2C rule would point towards the UK.

That is why the precise nature of the service is so important. GOV.UK

Digital Services Have Their Own Rules

Digital services are another good example of why you cannot rely solely on the general rules.

For B2C supplies of electronically supplied, telecommunications and broadcasting services, the place of supply is generally where the consumer is located.

That can potentially create VAT registration or reporting obligations in the customer’s country. GOV.UK

So selling an online or electronically delivered service internationally can require a very different analysis from providing an ordinary professional service.

Services Connected With Property

Services directly connected with land and property are another major exception.

Broadly, the place of supply is where the land itself is located.

That can apply regardless of where the supplier or customer belongs.

So if a UK business provides certain services directly connected with a property overseas, the VAT position may depend on the location of that property rather than the location of either party. GOV.UK

Don’t Confuse “No UK VAT” With “No VAT”

This is an important distinction.

If a transaction is outside the scope of UK VAT because the place of supply is overseas, that does not necessarily mean the transaction is tax free.

It means UK VAT isn’t the appropriate tax.

There may be:

• A reverse-charge obligation on the customer
• A requirement for the supplier to register overseas
• Local sales taxes or VAT
• Additional invoicing requirements

The answer depends on the country and the service involved.

A Simple Way to Think About It

When you’re selling services internationally, I’d work through the VAT position in roughly this order.

First: what exactly is the service?

You need to know whether a special place-of-supply rule applies.

Second: is the customer a business or an individual?

That determines whether you’re potentially looking at the B2B or B2C rules.

Third: where does the customer belong?

This is particularly important for B2B services and certain B2C exceptions.

Fourth: where is the place of supply?

Only once you’ve established that can you decide whether UK VAT is due.

Finally: are there any overseas VAT obligations?

Being outside the scope of UK VAT doesn’t necessarily finish the analysis.

Keep Evidence

If you’re not charging UK VAT because you believe the place of supply is outside the UK, keep evidence supporting that treatment.

That may include:

• Customer address details
• VAT registration numbers
• Contracts
• Company information
• Commercial correspondence
• Evidence showing where the customer actually belongs

HMRC specifically requires businesses relying on an overseas place of supply to maintain sufficient evidence. GOV.UK

The Bottom Line

For many services, the starting point is relatively simple.

B2B: the place of supply is normally where the customer belongs.

B2C: the place of supply is normally where the supplier belongs.

So a UK business supplying a general-rule service to an overseas business will normally not charge UK VAT, while a general-rule service supplied to an overseas private individual would normally be subject to UK VAT.

But those are only the general rules.

There are significant exceptions covering areas such as professional services, digital services, land, events and other specialist services.

So if your business sells services overseas, don’t simply decide whether to charge VAT based on where your customer lives.

First establish what you’re supplying, who you’re supplying it to and which place-of-supply rule actually applies.

This article provides general information only. International VAT and place-of-supply rules can be complex, and the treatment will depend on the precise nature of the service and the customer’s circumstances.