As well as gifting us the end of 2020, 1 January 2021 brought with it the first day of Brexit. Whatever your feelings about Brexit, the trade deal now gives us more certainty as to how things may look going forward which has to be good news for businesses. I've been reluctant to confirm anything completely until whatever trade deal or "no deal" was finalised, but now I think we are relatively safe in setting out how VAT may look going forward. This article concerns services only. If you trade in goods with the EU, please refer to this article here which sets out some further comments on the VAT considerations and processes for cross border trade.
How has VAT on services changed post-Brexit?
The short answer is, fortunately, that there is not a huge deal of change for many service providers and very little, if any, extra paperwork. I think we have all been frightened into thinking that we all have to fill in loads more forms and jump through hoops to trade with the EU going forward. Whereas this may or may not be true for other taxes and legalities, and will somewhat be the case for goods traders, this does not apply to a large extent to VAT changes for service providers.
Saying this though, there are a number of important changes for VAT, so please do read on to see if and how this may affect your business.
Commissions and fees paid by UK businesses for services taking place in the EU
Pre-Brexit, where you receive a commission or fee from a UK business, it would normally be taxable at the standard rate unless it related to a zero rated provision of transport, or a non EU service (for example, a UK corporate company pays you a commission for your arrangement of US hotels for its staff). Where the commission/fee relates to arranging zero rated passenger transport or non EU services, the commission/fee is zero rated.
Post-Brexit, the Taxation (Cross Border Trade) Act 2018 confirms that commissions/fees for arranging EU services will also become zero rated. This means that, if you arrange EU travel (or indeed other services with an EU place of supply) for a UK business, your commission/fee will now be zero rated. This is likely to particularly affect TMCs and other businesses which arrange corporate travel.
If a fee or commission relates partly to non UK travel and partly to UK travel, it may be necessary to split the fee between standard rated and zero rated. This has always been the case for fees relating to both EU and non EU travel. However, those who arrange EU travel only will have not had to consider this previously. If this affects you, I would recommend that this be reviewed to ensure that your systems can account for the VAT change correctly.
Commissions/fees paid to you by non UK businesses remain outside the scope of UK VAT.