How will a no-deal Brexit impact VAT for Agencies

With Brexit looming we thought we’d give a quick run-down of a potential no-deal Brexit on VAT for agencies. It’s not the most interesting of subjects so we’ll keep it a quick read and cover only the main points.

It is important to know that the VAT rules for overseas sales and purchases differ for sales of goods and sales of services and also for sales to consumers versus to businesses. In this blog, I am only considering sales of services to businesses.

The current VAT rules

Under the current rules, VAT is charged on most services sold within the UK and the EU. For services, the ‘place of supply’ rules determines the country in which you need to charge and account for VAT.

What is my ‘Place of Supply’

Broadly speaking, for agencies selling services to business customers in the EU, your place of supply is the place where your service is being treated as supplied (obviously). This is the place where it’s liable to VAT.

If you belong in the UK and the place of supply of your services is in the UK, you must charge any UK VAT due and account for it to HMRC regardless of where your customer belongs.

If you are selling to a business in the EU This means that, provided certain requirements have been fulfilled, no VAT should be charged to your client as the sale is ‘outside the scope’ of UK VAT. You can presume a client is a business in the EU if they provide you with their VAT number. which you can check using the EU VAT Registration Number Validation service).

EC Sales List (ECSL)

Under the current rules, an EC Sales list must be submitted to HMRC when you have supplied services to VAT-registered EU businesses and that business accounts for the VAT (this is known as the reverse charge).

What will change if there is a no-deal Brexit?

The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now.

We can expect that the supply of services to customers in the EU after Brexit to be treated the same as those to any customer outside the EU which means no VAT should be charged.

The rules around ‘place of supply’ will continue to apply in broadly the same way that they do now as these rules are in line with international standards set out by the Organisation for Economic Co-operation and Development (OECD).

EC Sales List post a no-deal Brexit

It is expected that the requirement to complete these would be abolished in event of a no-deal Brexit.

What’s next?

We’ll continue to keep you updated with Brexit related VAT news as HMRC issues new guidance. In the meantime, as VAT is a complex tax, particularly when sales and purchases from overseas are involved, it can be easy to make a mistake. If you are in any doubt about the correct VAT treatment of one of your sales or purchases then please contact one of our team of accountants in Surrey and we’ll walk you through what you need to do.