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VAT - place of supply rules update

Q. One of our clients is a VAT registered business operating as a garage. An individual based in Guernsey is sending his car to the UK for a service, and once the service is completed, my client will send the car back to the customer. Will my client be required to charge VAT?

A. The first thing to establish here is the place of supply, and to do that the client has to consider the nature of the service being provided, and whether his customer is a business (B-B) or an individual (B-C).  The service here is that of working on someone else’s goods and you have said that the customer is an individual. The general (or default) rules for B-B supplies and B-C supplies are different. If this had been a B-B supply, it would have fallen under the general place of supply rule, being where the business customer belongs, i.e. Guernsey, and therefore outside the scope of VAT.  However, as a B-C supply it is one of the exceptions to the B-C general rule (being where the supplier belongs), and the place of supply is where the work takes place. As it happens, in this particular case both rules achieve the same outcome.  The work takes place in the UK so the supply falls within the scope of UK VAT; however, this does not necessarily mean VAT must be charged.

Section 16 of VAT Notice 741A sets out those services that may, in certain circumstances, be subject to the zero-rate of VAT when supplied in the UK.  These services include work on goods for export (legal reference: VAT Act 1994 Schedule 8 Group 7 item 1).

Zero rating under this provision applies where:

  • the goods on which the work is to be carried out have been obtained, acquired within, or imported into the EC for the purposes of being worked on; and

  • the goods are not used in the UK between the time of leaving the supplier’s premises and exportation; and

  • on completion of the work, the goods are intended to be, and in fact are, exported from the EC either:

  • by the supplier of the service (or someone acting on their behalf); or

  • If the customer belongs outside the EC, by the customer (or someone acting on the customer’s behalf).

From the question above,

the information provided indicates that our client will meet these conditions and therefore the supply is zero-rated.  Importantly the client must obtain and keep satisfactory official or commercial evidence of the export of the car to a place outside the EU. Examples of acceptable evidence are set out in VAT Notice 703 VAT on goods exported from the UK.

Further information on work on goods for export is available in VATPOSS08900 & VAT Notice 741A Section 16 & 16.9.

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