Exporting as a service: VAT and IP

If you’re a service business, it’s likely that you’ll have a different set of considerations when it comes to exporting to those faced by goods exporters – as referenced in our ‘Preparing a service‘ article. There are both similarities and differences of course, the latter being most prevalent in reference to VAT and Intellectual Property.

Ahead of our webinar on exporting for services, Centurion VAT and the IPO have shared some useful resources and advice for service businesses approaching exporting for the first time.

IP

The Intellectual Property Office (IPO) is the official UK government body responsible for intellectual property (IP) rights including patents, designs, trade marks and copyright.

Intellectual property is often the company’s most important and valuable asset. But is yours properly protected, especially when you want to operate in overseas markets where the rules are often very different?

The 3 things you need to know before you go overseas are:

  1. Intellectual property takes many forms. Find out what you have and consider how significant it is to your business. Patents protect exclusive rights for inventions, trade marks for brand and logos, designs for the appearance of your product, trade secrets and copyright (which covers ideas, books, music, film websites and software).
  2. Intellectual property rights are territorial, usually only covering the country in which they are first issued.
  3. It’s a first to file system in most countries. So act early or risk missing out.

You can find out where to get advice in this guide the IPO have kindly shared with us.

VAT

Centurion have been providing a wide range of businesses and public sector bodies with VAT support since 1998. Liz started her career in VAT in HM Customs and Excise before moving to Ernst & Young where she became the first female Director of Corporate VAT services in the UK before joining Centurion in 2002.

VAT delivered over £116bn to the UK Treasury in 2016 which places it in the top three of tax revenue sources here in the UK. As we grow our export markets UK businesses need to ensure that the VAT treatment they apply to all sales is correct and International Services are not without their complexities from the VAT perspective.

Over the 43 years since VAT arrived in the UK the tax has certainly increased in its complexity and arguably the Brexit process provides a catalyst to review. However, until clarity is achieved on any post Brexit VAT system, here in the UK it remains important to understanding the core VAT rules as they apply to sales of services that businesses will make which will be regarded as International Services.

VAT is a tax on a transaction – it is not governed by whether there is a profit made on a supply – simply that a supply has occurred. A supply of services is defined as “anything that is not a supply of goods and which is done for a consideration”. It’s important to recognize the word used is “consideration” and not for “money”, as this can bring into the VAT arena supplies of services where the consideration you may receive back is of other goods or services – a barter arrangement effectively.

International services arise where:

  • The supplier and the customer are in different EU countries
  • Either the supplier or the customer is outside the EU
  • The service take place in another country

For UK business involved in international services the correct VAT treatment applicable to that supply will be determined by its “Place of Supply”. The three key steps to helping to establish the “Place of Supply” of that service and therefore what VAT rate will be charged and where are:

  • The nature of your customer – are they a business or a private consumer?
  • Where your customer belongs?
  • What type of service you are supplying that customer?

If the place of supply falls to be the UK then the UK VAT rules will apply. This doesn’t always mean that a standard rate of VAT will be charged more that it’s the UK VAT rules which govern the VAT treatment. If the place of supply falls to be outside of the UK – perhaps it will be treated as where the customer is based or where the service is performed – then the UK business making that supply must account for any VAT due in that overseas country, if it is applicable.

International services can be complex from the VAT perspective therefore due to this need to determine the place of supply of the service but there is a General Rule which applies to most transactions.

 

Sectors: Business Services
Topics: Export Planning, Finance, and Taxation
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