VAT Q&A: place of supply rules for intermediary services

In our regular Q&A series, Croner Taxwise VAT adviser Priyesh Mistry explains the VAT rules for third parties and whether VAT is charged at the standard rate when invoicing services from a non-UK based supplier

Q) My client is a UK VAT registered recruitment agency specialising in temporary staffing within the advertising industry. He was approached by a start-up UK marketing consultancy to help them find new contracts, and he found a customer in the US for their services. My client is now invoicing his fee to the marketing company for arranging that supply. 

Will this be a standard rate supply because they are invoicing a UK business? We believe this falls under the business-to-business general rule for intermediary services as per VAT Notice 741a section 11.

A) An intermediary for VAT purposes is a person or entity acting as a third party in arranging or facilitating the making of supplies. They are also known as agents, brokers or commissionaires.

As per VAT Notice 741A section 11, the place of supply rules are as follows for intermediary services:

  • business-to-business (B2B) - this falls under the general rule, therefore taxable where the business customer is located;
  • business-to-customer (B2C) - supplies are taxable where the underlying arranged supply is made.

As the client is making a supply to a UK company, the place of supply is the UK, and if he was making arrangements for a supply of services taking place within the UK or EU, then the supply of intermediary services would be standard rated.

However, the client is arranging a supply, the place of supply of which will be the US. This is zero rated under Item 2(c) of Group 7, Schedule 8.

HMRC’s internal Place of Supply of Services Manual, VATPOSS10200, confirms this: ‘Zero rating under item 2(c) can only apply where the intermediary's supply is made in the UK, but the arranged supply is itself made outside the EC.

‘It is possible for a UK intermediary to supply services to a UK customer in arranging a service for which the place of supply is the recipient’s country outside the European Union.

‘In these circumstances, the UK intermediary’s service to the customer, the UK principal, is supplied in the UK but is zero-rated under item 2(c) of Group 7, because the service is the making of arrangements for a supply of services which is itself made outside the EU.’

This is also covered in VAT Notice 741a section 16.

Your client’s invoice to the UK marketing company will be zero rated as it relates to arranging a supply where the eventual place of supply would be outside of the EU.

About the author

Priyesh Mistry is a VAT adviser at Croner Taxwise tel:  0844 892 2470 

This article first appeared in Croner Taxwise community

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