VAT on Overseas Services: Place of Supply Rules Explained

Introduction

Supplying services to overseas customers has become a normal part of doing business for many UK companies. Freelancers, consultants, digital agencies, IT providers, marketing firms, and professional service businesses now routinely work with clients across the EU, the US, and other international markets. While this creates new commercial opportunities, it also introduces significant VAT complexity.

Unlike domestic transactions, cross-border services are governed by VAT place of supply rules, which determine where a service is treated as supplied for VAT purposes. These rules decide which country has the right to tax the service and whether UK VAT should be charged at all. In many cases, services supplied to overseas customers are either outside the scope of UK VAT or subject to the reverse charge, but this is not always automatic.

Getting the place of supply wrong can have serious consequences. Businesses may:

• Incorrectly charge UK VAT when none is due
• Fail to charge VAT where it is required
• Trigger VAT registration obligations overseas
• Face penalties, interest, or retrospective VAT assessments
• Miss legitimate VAT recovery opportunities

The rules also differ depending on whether services are supplied to business customers (B2B) or private consumers (B2C), and whether the service falls under the general rule or one of many specific exceptions.

This guide explains how VAT applies to services supplied to overseas customers, how the place of supply is determined, the difference between B2B and B2C services, common exceptions, and how Brexit has reshaped the VAT framework. Whether you provide professional services, digital services, consultancy, or remote support, understanding these rules is essential for remaining compliant with HM Revenue & Customs.

What Is the VAT “Place of Supply”?

The place of supply is a core VAT concept that determines which country’s VAT rules apply to a transaction. For services, it answers a single but critical question:

Where is the service treated as supplied for VAT purposes?

The answer determines:

• Whether UK VAT should be charged
• Whether VAT is due in another country
• Whether the reverse charge mechanism applies
• Whether the supply is outside the scope of UK VAT altogether

In cross-border transactions, the place of supply is often not the same as where the supplier is based. A UK business can supply services that are treated as supplied outside the UK, meaning UK VAT is not charged even though the supplier is UK-established.

The place of supply rules exist to prevent two major VAT risks:

• Double taxation, where VAT is charged in both countries
• Non-taxation, where VAT is charged in neither country

To avoid these outcomes, VAT legislation applies structured rules that allocate taxing rights clearly between countries.

VAT on Services vs VAT on Goods: Key Differences

Understanding the difference between VAT on goods and VAT on services is essential, particularly for businesses that supply both internationally.

VAT Place of Supply for Goods

For goods, the place of supply is generally determined by physical movement and location, including:

• Where the goods are located at the time of supply
• Where transport begins or ends
• Whether goods are imported or exported

Goods are closely linked to customs procedures, import VAT, export zero-rating, and border controls.

VAT Place of Supply for Services

Services are different because they are intangible. There is no physical movement, so VAT law focuses instead on:

• Customer status (business or consumer)
• Customer location
• Nature of the service supplied

VAT on services is governed by:

• A general rule (for most services)
• A wide range of specific exceptions for certain service types

These rules can override each other depending on the circumstances, which is why place of supply is one of the most technically complex areas of VAT.

Although this guide focuses on services, businesses supplying mixed goods and services must apply both sets of rules correctly to avoid misclassification and VAT errors.

General Place of Supply Rules for Services

For VAT purposes, services supplied across borders are divided into two fundamental categories, each with its own general rule:

• Business-to-Business (B2B) services
• Business-to-Consumer (B2C) services

Correctly identifying which category applies is essential, as it directly determines:

• Where the service is treated as supplied
• Whether UK VAT should be charged
• Whether VAT is due in another country
• Whether the reverse charge mechanism applies

Applying the wrong rule is one of the most common causes of VAT errors in international services.

B2B Services: General Rule

For most services supplied to overseas business customers, the general place of supply rule for B2B services applies.

General Rule for B2B Services

The place of supply is:

Where the customer belongs

In practical terms, this means:

• The supplier is based in the UK
• The customer is a business established outside the UK
• UK VAT is not charged
• VAT is usually accounted for by the customer in their own country under the reverse charge mechanism

The logic behind this rule is that VAT should be taxed where the customer consumes the service, not where the supplier is located.

B2B Example

A UK consultancy provides strategic advisory services to a VAT-registered company in Germany.

• ✔ Place of supply: Germany
• ✔ UK VAT: Not charged
• ✔ German VAT: Accounted for by the German customer under the reverse charge

In this scenario:

• The UK supplier issues an invoice without UK VAT
• The invoice includes wording such as “Reverse charge applies”
• The German customer declares the VAT in their own VAT return

This treatment applies regardless of whether the service is delivered remotely or involves occasional travel.

B2C Services: General Rule

For services supplied to overseas consumers (non-business customers), a different general rule applies.

General Rule for B2C Services

The place of supply is:

Where the supplier belongs

This means that:

• The supplier is established in the UK
• The customer is a private individual based overseas
• UK VAT is normally charged, unless a specific exception applies

Under this rule, VAT follows the supplier, not the customer.

B2C Example

A UK graphic designer provides design services to a private individual living in Canada.

• ✔ Place of supply: UK
• ✔ UK VAT: Charged
• ✖ No reverse charge applies

Even though the customer is overseas, UK VAT is due because the supply is treated as made in the UK.

This often comes as a surprise to small businesses, particularly freelancers and digital service providers working with international private clients.

Determining Whether a Customer Is a Business or a Consumer

Correctly identifying whether a customer is a business (B2B) or a consumer (B2C) is critical. HMRC expects businesses to take reasonable steps to determine customer status and to retain evidence.

Business Customer (B2B)

A customer is treated as a business if they:

• Are VAT registered, or
• Carry out economic activity, even if not VAT registered

Importantly, VAT registration is strong evidence but not the only test. A business may be treated as B2B even if it is not VAT registered, particularly in countries with high registration thresholds.

Acceptable evidence may include:

• A valid VAT registration number
• Business registration documents
• Commercial contracts or engagement letters
• Business websites or professional correspondence
• Invoices addressed to a business entity

Where a customer provides a VAT number, the supplier should:

• Validate it (for EU customers, where applicable)
• Retain a record of the validation check

Consumer (B2C)

A customer is treated as a consumer if they:

• Are a private individual
• Do not carry out business or economic activity
• Are purchasing services for personal use

Private individuals, hobbyists, and non-commercial customers fall into this category.

What If Customer Status Is Unclear?

In some cases, customer status may not be obvious. Where there is uncertainty, HM Revenue & Customs expects suppliers to make reasonable checks based on the information available.

If a supplier fails to verify status properly and applies the wrong VAT treatment, HMRC may:

• Reclassify the supply
• Assess underpaid VAT
• Apply interest and penalties

Maintaining clear onboarding processes and customer verification procedures significantly reduces this risk.

Exceptions to the General Place of Supply Rules

Although most services follow the standard B2B and B2C place of supply rules, VAT law includes a number of important exceptions. These exceptions apply regardless of whether the customer is a business or a consumer and are designed to tax certain services where they are physically consumed or where close economic links exist.

Failing to identify an applicable exception is one of the most common causes of incorrect VAT treatment on overseas services.

Services Related to Land and Property

Place of Supply Rule

For services that are directly connected with land or property, the place of supply is:

Where the land or property is physically located

This rule overrides the general B2B and B2C rules.

Services Covered by This Rule

The land and property exception applies to services such as:

• Property management and letting services
• Architectural and design services
• Surveying and valuation
• Construction, renovation, and building services
• Estate agency services
• Legal services directly related to property transactions

The key test is whether the service has a sufficiently direct connection to a specific piece of land or property.

Practical Example

A UK-based property management company provides management services for a commercial property located in France.

• ✔ Place of supply: France
• ✔ UK VAT: Not charged
• ✔ French VAT rules apply

In this case, the UK supplier must follow French VAT rules, which may include:

• Charging French VAT, or
• Applying the reverse charge (depending on the customer’s status and local rules)

UK VAT is irrelevant because the place of supply is outside the UK.

Admission to Events

Place of Supply Rule

For admission to events, the place of supply is:

Where the event actually takes place

This rule applies to both B2B and B2C supplies.

Events Covered

This exception applies to admission fees for:

• Conferences and seminars
• Exhibitions and trade fairs
• Training courses delivered in person
• Cultural, artistic, or sporting events

It applies specifically to admission, not to ancillary services such as marketing or consultancy.

Practical Impact

If a UK business sells tickets or charges admission for an event held overseas, VAT is due according to the VAT rules of the country where the event takes place, not the UK.

This often creates overseas VAT registration obligations if local VAT cannot be reverse charged.

Short-Term Hire of Means of Transport

Place of Supply Rule

For short-term hire of transport, the place of supply is:

Where the vehicle is put at the customer’s disposal

Transport Covered

This rule applies to the short-term hire of:

• Cars and vans
• Boats and yachts
• Aircraft

“Short-term” is strictly defined in VAT law and typically means:

• Up to 30 days for land vehicles
• Up to 90 days for boats

Why This Matters

VAT is charged based on where the customer physically receives the vehicle, not where the supplier or customer is established. This rule prevents VAT avoidance through artificial structuring.

Digital Services (B2C)

Digital services supplied to consumers follow special place of supply rules, which override the general B2C rule.

What Counts as Digital Services?

Examples include:

• Streaming platforms and media services
• Online software and SaaS access
• Mobile apps and in-app purchases
• Online subscriptions and digital downloads

Place of Supply Rule

For B2C digital services, the place of supply is:

Where the consumer is located

This means that UK suppliers providing digital services to overseas consumers may be required to:

• Charge overseas VAT, not UK VAT
• Register for VAT in other countries, or
• Use special VAT simplification schemes (where available)

These rules are among the most complex in VAT and require robust customer location evidence.

VAT on Overseas Services After Brexit

Brexit significantly changed how VAT applies to services between the UK and the EU.

Before Brexit

• UK businesses were part of the EU VAT system
• EU place of supply rules applied directly
• Simplified reporting mechanisms were available
• EU VAT portals could be used in many cases

After Brexit

Since Brexit:

• The UK is treated as a third country for EU VAT purposes
• EU VAT rules no longer apply directly to UK businesses
• The reverse charge applies more broadly to B2B services
• Many UK services are now outside the scope of EU VAT
• Compliance has become more fragmented and country-specific

For many B2B services, this has reduced VAT being charged. However, it has increased complexity for:

• Digital services
• B2C supplies
• Services requiring overseas VAT registration

Reverse Charge Mechanism Explained

The reverse charge is a mechanism designed to simplify cross-border VAT and prevent fraud.

How the Reverse Charge Works

Under the reverse charge:

• The customer, not the supplier, accounts for VAT
• The supplier does not charge VAT on the invoice
• The customer declares VAT in their own VAT return

This mechanism shifts the VAT reporting obligation to the country of consumption.

When Reverse Charge Applies

Reverse charge typically applies to:

• B2B services supplied across borders
• Services falling under the general B2B place of supply rule
• Many post-Brexit UK–EU service transactions

Invoice Wording

Invoices must clearly state that the reverse charge applies. Typical wording includes:

“VAT reverse charged under Article 196 / UK VAT Act”

Incorrect or missing wording is a frequent cause of HMRC challenges.

How to Invoice Overseas Customers Correctly

Correct invoicing is essential when supplying services overseas. A compliant invoice should include:

• Full customer details, including country of establishment
• The customer’s VAT number (for B2B supplies, where applicable)
• A clear statement that VAT is reverse charged, if applicable
• A detailed description of the services supplied
• Confirmation that UK VAT is not charged where the supply is outside the scope

Poor or incorrect invoicing is one of the most common triggers for queries from HM Revenue & Customs, even where the underlying VAT treatment is correct.

VAT Reporting for Overseas Services

Correct VAT treatment does not end with issuing the right invoice. Accurate VAT return reporting is just as important, particularly for overseas services where errors are common and HMRC scrutiny is higher.

Depending on how the service is treated for VAT purposes, different boxes of the UK VAT return must be completed correctly.

Services Outside the Scope of UK VAT

Where services are supplied to overseas customers and fall outside the scope of UK VAT (for example, B2B services supplied under the general place of supply rule):

• The value of the supply is reported in Box 6 (total value of sales)
• No output VAT is shown in Box 1
• No UK VAT is charged on the invoice

Although no VAT is payable, HMRC still requires the transaction value to be reported to maintain a complete audit trail.

Reverse Charge Supplies

For services subject to the reverse charge:

• UK VAT is not charged
• The customer accounts for VAT in their own country
• The supply value is still reported in Box 6
• Box 1 remains unchanged (no output VAT)

In some cases, additional reporting obligations may apply, depending on:

• The customer’s location
• The nature of the service
• Overseas or EU-specific reporting requirements

Even after Brexit, HMRC continues to monitor cross-border service supplies closely, and inconsistencies between invoicing and VAT returns are a common trigger for enquiries.

Why Accurate VAT Reporting Matters

Incorrect VAT return completion can result in:

• VAT assessments for underdeclared tax
• Repayment delays or blocked refunds
• Interest and penalties
• Increased likelihood of future compliance checks

Even where no VAT is due, misreporting overseas services is still treated as a compliance failure.

Common Mistakes with VAT on Overseas Services

VAT on overseas services is one of the most error-prone areas of UK VAT. Businesses frequently make mistakes not because of negligence, but because the rules are complex and counterintuitive.

The most common errors include:

• Charging UK VAT when it should not be charged, resulting in overpaid VAT and customer disputes
• Failing to apply the reverse charge, leading to underdeclared VAT overseas
• Misclassifying customers as B2C instead of B2B, or vice versa
• Ignoring specific place of supply exceptions, such as property-related or event-based services
• Incorrect VAT return reporting, including missing Box 6 entries or incorrect values

These mistakes often come to light only during:

• HMRC compliance checks
• VAT refund reviews
• Customer VAT audits
• Cross-border information exchange

When errors are discovered, HMRC may issue retrospective assessments covering multiple VAT periods, significantly increasing the financial impact.

When to Seek Professional Advice

Professional VAT advice is strongly recommended where overseas services are involved, particularly because small errors can quickly escalate into large liabilities.

You should consider specialist support if you:

• Supply services to multiple countries
• Provide digital, online, or electronically supplied services
• Work with both businesses and private consumers
• Are unsure whether your services are supplied inside or outside the UK
• Need to apply or understand the reverse charge mechanism
• Have received queries, assessments, or correspondence from HM Revenue & Customs

Early advice can:

• Prevent incorrect VAT charges
• Reduce the risk of penalties and interest
• Identify VAT recovery opportunities
• Ensure invoices and VAT returns are fully compliant

For many businesses, professional input is not a cost — it is a safeguard against long-term VAT risk.

Frequently Asked Questions (FAQ): VAT on Services to Overseas Customers

What does “place of supply” mean for VAT on services?

The place of supply determines which country’s VAT rules apply to a service. It decides whether UK VAT should be charged, whether VAT is due in another country, or whether the supply is outside the scope of VAT altogether. For services supplied internationally, place of supply rules are critical to avoid double taxation or non-taxation.

Why is the place of supply so important for overseas services?

Getting the place of supply wrong can lead to:

• Charging VAT when you shouldn’t
• Failing to charge VAT when required
• Overpaying VAT with no right to recover it
• Penalties, interest, and HMRC assessments

Correct place of supply treatment ensures compliance with HM Revenue & Customs and protects both the supplier and the customer.

Do UK businesses charge VAT on services supplied to overseas customers?

Not always. It depends on:

• Whether the customer is a business (B2B) or a consumer (B2C)
• Where the customer is located
• What type of service is supplied

In many B2B cases, UK VAT is not charged, and the reverse charge applies.

What is the general VAT place of supply rule for B2B services?

For most business-to-business (B2B) services, the place of supply is:

Where the customer belongs

This usually means:

• No UK VAT is charged
• VAT is accounted for by the customer in their country under the reverse charge mechanism

What is the general VAT place of supply rule for B2C services?

For most business-to-consumer (B2C) services, the place of supply is:

Where the supplier belongs

This means UK VAT is usually charged, unless a specific exception applies.

How do I know if my overseas customer is a business or a consumer?

A customer is treated as a business if they:

• Are VAT registered, or
• Carry out economic activity

Evidence may include:

• A valid VAT number
• Company registration details
• Contracts or commercial correspondence

If the customer is a private individual with no business activity, they are treated as a consumer.

What happens if I misclassify a customer as B2B or B2C?

Misclassification can result in:

• Incorrect VAT being charged or omitted
• VAT assessments and penalties
• The need to issue corrected invoices

HMRC expects businesses to take reasonable steps to verify customer status.

What services do not follow the general place of supply rules?

Several services follow special place of supply rules, including:

• Land and property-related services
• Admission to events
• Short-term hire of transport
• Passenger transport
• Cultural, educational, and sporting activities
• Certain digital services

Each category has its own VAT treatment.

How does VAT work for services related to overseas property?

Services directly connected to land or property are supplied:

Where the property is located

This applies regardless of whether the customer is a business or consumer. Local VAT rules of the property’s country apply.

What are the VAT rules for digital services supplied overseas?

Digital services are subject to special rules, especially for B2C supplies.

Examples include:

• Online software (SaaS)
• Streaming platforms
• Mobile apps
• Online subscriptions

For B2C digital services, VAT is usually due:

Where the customer is located

This may require VAT registration abroad or use of special schemes.

How did Brexit change VAT on services supplied to EU customers?

After Brexit:

• The UK is treated as a non-EU country
• Many B2B services to EU businesses are now outside the scope of UK VAT
• The reverse charge applies more widely
• EU VAT portals are no longer available to UK suppliers

Brexit simplified VAT in some areas but increased complexity in others.

What is the reverse charge mechanism?

Under the reverse charge, the customer accounts for VAT instead of the supplier.

Key points:

• No VAT is charged on the invoice
• The invoice must state that VAT is reverse charged
• The customer declares VAT in their local VAT return

This is common for B2B overseas services.

What wording should appear on invoices for overseas services?

Invoices should include:

• Customer’s country and VAT number (if applicable)
• Clear description of the service
• Statement such as:
  “VAT reverse charged – Article 196” or equivalent UK wording
• Confirmation that no UK VAT is charged (where applicable)

Incorrect invoice wording is a frequent compliance issue.

Do overseas services need to be reported on a UK VAT return?

Yes, even when no UK VAT is charged.

Typically:

• Supplies outside the scope of UK VAT are included in Box 6
• No output VAT is shown in Box 1
• Reverse charge supplies may have additional reporting requirements

Can I reclaim VAT on costs related to overseas services?

In most cases, yes — provided:

• The costs relate to taxable business activity
• The supply would be taxable if made in the UK
• You hold valid VAT invoices

This is especially important for exporters and service-based businesses.

What are the most common VAT mistakes with overseas services?

Common errors include:

• Charging UK VAT when services are outside the scope
• Failing to apply the reverse charge
• Misunderstanding place of supply exceptions
• Incorrect VAT return reporting
• Poor evidence of customer status

These mistakes often lead to HMRC queries or assessments.

Do sole traders and small businesses have different rules?

No. The same VAT place of supply rules apply regardless of business size. Small businesses are just as exposed to compliance risk as larger companies.

When should I seek professional VAT advice?

Professional advice is strongly recommended if:

• You supply services internationally on a regular basis
• You work with both EU and non-EU customers
• You provide digital or online services
• You are unsure whether VAT should be charged
• HMRC has queried your VAT treatment

How Audit Consulting Group Can Help

Audit Consulting Group helps UK businesses:

• Determine correct place of supply
• Apply reverse charge rules correctly
• Structure compliant overseas invoices
• Review VAT returns
• Manage HMRC queries and international VAT risk

+44 7386 212550
info@auditconsultinggroup.co.uk

Final Thoughts

VAT on overseas services is one of the most technical areas of UK VAT. While the general rules are clear in principle, exceptions, customer status, and Brexit changes create real-world complexity. Applying the correct place of supply rules protects your business from penalties, ensures accurate VAT reporting, and prevents unnecessary VAT costs for you and your customers.