Q: I have recently arranged for a UK business to supply consultancy services to a business in the USA and will be invoicing the UK business for my commission imminently. I understand that the place of supply for intermediary services is where the customer belongs and so, as my customer is in the UK, I should charge UK VAT. However, the customer has indicated to me that no VAT should be charged as the supply is zero-rated. Please could you clarify the position?
A: You are correct in your understanding that intermediary services fall under the general rule in respect of the place of supply rules and so the place of supply is where the customer belongs when supplied to another business.
However, if you act as an intermediary and the place of supply of your service is the UK, but the place of supply of the service being arranged is outside the EC, your supply can be zero-rated. The legal reference for is Item 2(c) to Group 7 of Schedule 8 of the VAT Act 1994.
This means that your supply can be zero-rated because the place of supply of the consultancy service from the UK business to the business in the USA is outside of the EC (consultancy services are also supplied where the customer belongs when supplied to another business). Thus you are arranging a supply of services that is made outside the EC.
The implementation of the VAT package on 1st January 2010 was intended to simplify the existing rules for businesses selling services to overseas customers and buying from overseas suppliers. Despite the intention, the new rules are full of subtle intricacies and anomalies, similar to the one explained above, and there are many other matters for businesses making cross border supplies to contend with including invoicing obligations and EC sales lists. Businesses and their advisors need to be aware of when things are not as straightforward as they seem. Without knowledge and awareness of these issues and with the added risk of penalties mistakes can prove costly.
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