The place of supply decides which country’s VAT applies to a service. Under section 7A of the VAT Act 1994 a service to a business customer is supplied where the customer belongs, and a service to a consumer is supplied where the supplier belongs, but Schedule 4A overrides both for services connected with property, hire of transport, events, catering, passenger transport, intermediaries and several others. HMRC tells you to check the special rules first and fall back on the general rules only if none applies.
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Why does the place of supply decide whether VAT is charged?
VAT Notice 741A, paragraph 2.1, says the place of supply is where the service is treated as supplied and therefore where it is liable to VAT. If that place is the UK, UK VAT applies whatever the customer’s location; if it is elsewhere, the supply is outside the scope of UK VAT and you or your customer may have to deal with the other country’s tax (paragraph 2.2). Records should hold enough evidence to show why a supply is outside the UK.
Paragraph 1.4 stresses that there is no general relief for exports of services as there is for goods. A service supplied in the UK may be standard rated, reduced rated, zero rated or exempt on its own merits. Only a few specific services, such as certain intermediary services, work on goods for export and training for overseas governments, can be zero rated under Schedule 8 Group 7 (section 15).
Is my customer a business or a consumer?
Section 7A(4) treats a customer as a relevant business person if it carries on a business and does not receive the services wholly for private purposes, whether or not they are received in the course of that business. Notice 741A, paragraph 2.4, therefore treats charities, local authorities and government departments that have both business and non business activities as B2B customers. Private individuals, purely non business bodies and anyone receiving the service wholly for private purposes are B2C.
Paragraph 6.3 says you may presume a customer is in business if it gives you its VAT number, unless you know the service is for private use. If an overseas customer has no VAT number you can accept other commercial evidence of business activity, such as certificates from its tax authority. Without evidence, treat the supply as B2C.
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Where does a business or customer belong?
Section 3 of the notice explains that a business belongs where it has its business establishment, meaning the place where its central administration functions are carried out and day to day management decisions are taken. A registered office alone is not enough. A fixed establishment, such as a branch with permanent human and technical resources, can be the place of belonging if it is more closely connected with the supply. Someone with neither belongs where they usually reside.
Where a supplier or customer has establishments in more than one country, paragraph 4.1 says the business establishment is generally most closely concerned with the supply, unless the supply is made using a fixed establishment’s resources or received for that establishment’s own needs. A branch that contracts for services used across the whole business is treated as buying for the business establishment.
What are the general rules?
Section 7A(2) sets them out, and Notice 741A paragraphs 6.2 and 6.3 explain them:
- B2B general rule. The service is supplied where the customer belongs. A UK firm advising a German company makes a supply outside the scope of UK VAT; a German firm advising a UK company makes a supply in the UK.
- B2C general rule. The service is supplied where the supplier belongs, wherever the consumer is.
Paragraph 6.1 is explicit about the order: consider each special rule first, apply a general rule only if none fits, and then consider whether zero rating applies. Paragraph 2.3 adds that you must identify exactly what is being supplied; generic invoice descriptions make that harder to prove.
Which services follow special rules?
| Service | Place of supply |
|---|---|
| Services directly connected with a specific site or building (section 7) | Where the property is, for B2B and B2C |
| Short term hire of a means of transport, up to 30 days or 90 days for vessels (section 8) | Where the vehicle is put at the customer’s disposal |
| Long term hire of a means of transport | Where the customer belongs, with an exception for B2C pleasure boats |
| B2B admission to events and ancillary services (section 9) | Where the event takes place |
| B2C cultural, artistic, sporting, scientific, educational and entertainment services | Where performed |
| Restaurant and catering services | Where physically carried out |
| B2C valuation of and work on goods | Where performed (B2B follows the general rule) |
| Passenger and freight transport (section 10) | Special transport rules |
| Intermediary services (section 11) | B2B general rule; B2C where the arranged supply is made |
| B2C digital, telecoms and broadcasting services (section 14) | Where the consumer is located |
The property rule covers only services where the site is central and essential, or that legally or physically alter it, such as construction, surveying or valuing a property, conveyancing and hotel accommodation (paragraph 7.4). Services with only an indirect connection, or where the property element is incidental, are not caught (paragraph 7.3); paragraph 7.5 lists accountancy or tax advice as indirect, even when it concerns tax on rental income.
Section 12 adds an important B2C exception. Where a UK supplier provides certain services to consumers who belong outside the UK, the supply is made where the customer belongs and is outside the scope of UK VAT. The list includes services of consultants, engineers, lawyers and accountants, advertising, banking, financial and insurance services, transfers of intellectual property rights, supplies of staff, and hire of goods other than means of transport. Paragraph 12.1 says it is the nature of the service, not your professional status, that counts.
How do the use and enjoyment rules change the answer?
Section 13 can move the place of supply to where a service is effectively used and enjoyed, either bringing into UK VAT a service consumed here that would otherwise escape it, or taking out one consumed abroad. It applies to hire of goods including means of transport, B2B electronically supplied services, B2B telecoms, B2B repairs to goods under an insurance claim, and radio and television broadcasting. Partial use is apportioned. One HMRC example: a yacht hired in the Channel Islands that spends 21 of its 28 hire days in UK waters bears UK VAT on three quarters of the charge.
Who accounts for the VAT when the supplier is overseas?
Under section 8 of the VAT Act 1994, a UK business receiving B2B general rule services from a supplier belonging outside the UK applies the reverse charge, unless the service is exempt (paragraph 5.1). It accounts for output tax in box 1 and input tax in box 4, with the value in boxes 6 and 7, so a fully taxable business has no net cost while a partially exempt one bears VAT as if it had bought from a UK supplier (paragraphs 5.2 and 5.4). The reverse charge applies even if the overseas supplier holds a UK VAT number.
A UK business that is not registered must add the value of general rule services received from overseas to its own taxable supplies when testing the registration threshold (paragraph 5.7). For property related, event, catering, work on goods, passenger transport and use and enjoyment services supplied in the UK, the reverse charge applies only if the UK customer is VAT registered and gives its number (paragraph 5.9). An overseas supplier making UK supplies outside the reverse charge has no registration threshold and must register (paragraph 2.6).
How does this work for a typical UK firm?
Illustration only. A UK accountancy practice has four engagements:
- Advising a French company on its UK subsidiary: B2B general rule, supplied in France, outside the scope of UK VAT. Keep the client’s VAT number.
- Preparing a tax return for an individual who lives in Australia: B2C, but accountancy is on the section 12 list, so supplied where the customer belongs and outside the scope.
- Preparing a tax return for a UK resident individual: B2C general rule, supplied in the UK, standard rated.
- Buying software consultancy from a US company: B2B general rule, supplied in the UK, so the practice accounts for VAT under the reverse charge.
What mistakes are common?
- Treating an overseas customer as automatically outside the scope without checking the special rules first.
- Failing to hold evidence that a customer is in business, or where it belongs.
- Confusing a supply of staff with a service performed using your own staff; Notice 700/34 says the distinction affects the place of supply. See staff secondments and VAT.
- Forgetting the reverse charge on overseas purchases, or its cost under partial exemption.
- Mixing up this cross border reverse charge with the domestic reverse charge on specified goods.
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Related Accountapedia entries
- Proving an overseas customer is in business for VAT
- Do overseas sales count for the VAT threshold
- Reverse charge on services bought from abroad
- Place of supply for property related services
- Use and enjoyment rules for VAT
See also: Invoicing overseas clients as a UK IT consultant.
Sources
- legislation.gov.uk: Act 1994 c. 23, section 7A
- GOV.UK: Vat place of supply of services notice 741a
- GOV.UK: Companies that supply staff and staff bureaux vat notice 70034
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.