Professional Service Firms, Important VAT Changes from 1 July 2021

Professional Service Firms, Important VAT Changes from 1 July 2021

A new One Stop Shop (OSS) VAT accounting procedure commences on 1 July.  This is an extension of an existing accounting procedure that has been in place for a few years and currently applies to supplies of electronic services to individuals or consumers (B2C).

The new OSS procedure applies to sales of goods (to individuals) within the EU, supplies of goods via electronic interfaces and services to individuals in EU countries where the supplier is not established. This procedure will allow you to register in one member state of identification and account for VAT on the B2C supplies of relevant services in all member states.

At the time of writing there is some uncertainty on whether these rules extend to all B2C services and how they will be applied in other countries. This is specifically important for accountants, lawyers, and consultants.

Current HMRC guidance on the VAT position of professional services can be found using this link.

This guidance states that where specific services are provided to individuals they are regarded as taking place in the country where the client or customer belongs. If this is not the UK the supply will be outside the scope of UK VAT. This rule applies to:

• services of consultants, engineers, consultancy bureaux, lawyers, accountants, and other similar services - data processing and provision of information, but not services relating to land
• banking, financial and insurance services
• supplies of staff

However, the final VAT position depends on the nature of the services and the rules of the country in which the client is located.  For example, property conveyancing and surveying services are not covered by the rule as they are land related services.  They are subject to VAT wherever the land in question is located.

The UK position is clear – if the supply is deemed to take place outside the UK there is no requirement to charge or account for UK VAT. However local VAT registration and accounting requirements need to be considered and it may be necessary to account for VAT on some services in other countries. The VAT status and accounting requirements of supplies made after 1 July to individuals outside the UK should therefore be confirmed. Evidence to show the customer and supply is made outside the scope of UK VAT should also be retained.

Please contact your local Azets representative or a member of our specialist Indirect taxes team if you require further information regarding the changes.