On 1st January 2010 two new basic rules were introduced for the “place of supply of services”. The place of supply of services is important because it decides if VAT is chargeable and whether you need to register for VAT in another member state. The new rules are:
• If the customer is in business, the services are supplied where the customer belongs
• If the customer is not in business, the place of supply is where the supplier belongs.
This means that in most cases, if your customer is in business you do not need to charge VAT, they account for VAT on your behalf under what is called the “reverse charge” – but there are some important exceptions – and if your customer is not in business, normally a private individual, then you charge them UK VAT.
When dealing with a business in another EU member state you will need to obtain your customer’s VAT number.
For compliance the first thing you need to do is add some wording to your sales invoices. The VAT man says that acceptable wording is either: “Reverse charge service” or “This supply is subject to the reverse charge”. This will tell your customer that they have to account for the VAT on your behalf.
You will also need to complete an EC Sales List and show the VAT number of your customer and the value of the supply. Put “3” in the indicator box to show that it’s a supply of services.