VAT notice 741A cancels and replaces the previous notice 741 issued in February 2010. As well as covering new requirements, it has been substantially updated to improve layout and readability.

It is intended for individuals and businesses who make supplies of services to customers outside the UK, or receive services from suppliers that belong outside the UK, or belong outside the UK and have customers in the UK.

The guidance explains that the majority of services are treated as supplied in the place where the customer belongs when provided to non-EU non-business customers, and so are outside the scope of VAT. It provides a listing of such services, which include accountancy, banking, insurance and financial services among others.

Additional rules apply to B2C letting on hire of goods and radio and television broadcasting services.

The use and enjoyment rules are intended to ensure taxation takes place where services are consumed where either services are consumed within the UK but would otherwise escape VAT, or they would be subject to UK VAT when consumed outside the EU. Effective use and enjoyment takes place where a recipient actually consumes services irrespective of the contractual arrangements, payment or beneficial interest.

The services covered by these rules are: the letting on hire of goods (including means of transport); electronically supplied services (B2B only); telecommunications services (B2B only); repairs to goods under an insurance claim (B2B only); radio and television broadcasting services.

A service is normally regarded as being used and enjoyed where the customer consumes the service.

Where a relevant service is partially used and enjoyed outside the EU, the supplier (or customer required to account for the supply) should carry out an apportionment based upon the extent to which it is used and enjoyed outside the EU.

The most significant change in the VAT notice relates to the supply of telecommunication services. Up to 31 October 2017, with one exception, B2C telecommunications services were subject to UK VAT when supplied to UK residents or used and enjoyed in the UK by visitors from countries outside the EU.

Examples included public payphones and charges for calls made from hotel rooms. However, elements of telecommunications services used in the UK were ignored if they were simply an incidental part of an established telephone contract or account held by a customer who belonged outside the EU, used by a non-EU temporary visitor, and HMRC was satisfied that these conditions were not being abused.

The exception to this rule was that if a UK resident used telecommunications services outside the EU under such an account with a UK provider, those services were outside the scope of UK VAT, provided that evidence was retained to substantiate the element of use and enjoyment that occurred outside the EU.

From 1 November 2017 the law has changed in relation to B2C telecommunications services, and the rule concerning the place where the services were used and enjoyed was withdrawn. Consequently supplies of such services by UK suppliers to UK residents are now always subject to VAT. Supplies to visitors from countries outside the EU are no longer subject to UK VAT.

VAT Notice 741A: place of supply of services is here.

Report by Pat Sweet