As announced at Budget 2018, HMRC has revised its guidance for VAT groups to clarify which overseas services can be classified as ‘bought-in’ services, to ensure that such services are subject to UK VAT.
When a UK VAT group acquires certain services through an overseas establishment of a member of the same group, the UK group is subject to a reverse charge on the value of the whole supply. This amount may be reduced to a sum equal to the value of the ‘bought-in’ services used in onward supplies to members of the UK group.
The revised version of VAT Notice 700/2: Group and divisional registration, now defines bought-in services as those:
that would be taxable in the UK if made to a business belonging in the UK;
received by the overseas establishment of a VAT group member; and
subsequently used to make a supply to the UK establishment of another member of the VAT group.
Examples of such services are:
agency staff and other contract staff (unless on secondment);
telecoms;
legal and professional services;
software and other IT costs;
consultancy services; and
advertising and marketing services.
Costs for wages and remuneration of the overseas establishment’s own directly employed staff would not be bought-in services.
Revised Notice 700/2 now sets a limit of £7,500 below which HMRC will ignore the charge as ‘trifling’, in line with the current partial exemption de minimis limit.
The notice also contains a new section on the implications for UK VAT groups of the judgment in Skandia America Corporation [2015] STC 1163, where supplies will become taxable if made from an overseas establishment that is part of a VAT group in a member state operating ‘establishment only’ grouping provisions similar to those in Sweden.
The changes in Finance Act 2019 Sch 18 to widen the eligibility criteria for VAT grouping will be added to the notice at a later date, once they have been brought into force. These changes will allow non-corporate entities to join a VAT group, such as individuals and partnerships who meet a control test, following the judgment in Larentia + Minerva and Marenave [2015] STC 2101.
As announced at Budget 2018, HMRC has revised its guidance for VAT groups to clarify which overseas services can be classified as ‘bought-in’ services, to ensure that such services are subject to UK VAT.
When a UK VAT group acquires certain services through an overseas establishment of a member of the same group, the UK group is subject to a reverse charge on the value of the whole supply. This amount may be reduced to a sum equal to the value of the ‘bought-in’ services used in onward supplies to members of the UK group.
The revised version of VAT Notice 700/2: Group and divisional registration, now defines bought-in services as those:
that would be taxable in the UK if made to a business belonging in the UK;
received by the overseas establishment of a VAT group member; and
subsequently used to make a supply to the UK establishment of another member of the VAT group.
Examples of such services are:
agency staff and other contract staff (unless on secondment);
telecoms;
legal and professional services;
software and other IT costs;
consultancy services; and
advertising and marketing services.
Costs for wages and remuneration of the overseas establishment’s own directly employed staff would not be bought-in services.
Revised Notice 700/2 now sets a limit of £7,500 below which HMRC will ignore the charge as ‘trifling’, in line with the current partial exemption de minimis limit.
The notice also contains a new section on the implications for UK VAT groups of the judgment in Skandia America Corporation [2015] STC 1163, where supplies will become taxable if made from an overseas establishment that is part of a VAT group in a member state operating ‘establishment only’ grouping provisions similar to those in Sweden.
The changes in Finance Act 2019 Sch 18 to widen the eligibility criteria for VAT grouping will be added to the notice at a later date, once they have been brought into force. These changes will allow non-corporate entities to join a VAT group, such as individuals and partnerships who meet a control test, following the judgment in Larentia + Minerva and Marenave [2015] STC 2101.
