HMRC have recently updated their internal VAT manual to clarify the “place of supply” rules for services. This is one of the most complex areas of VAT legislation and of course the rules changed significantly since the UK left the EU.
The country where a supply is deemed to be made is called the ‘place of supply’ and is the place where it is liable to VAT, if any. These rules are necessary to ensure that VAT, where payable, is paid only in the correct country and to avoid the possibility of supplies being taxed more than once or not at all.
Although there are numerous exceptions depending on the nature of the services, the general rule is that services supplied between businesses (B2B) are taxable where the customer belongs. If the supplier and customer belong in the UK then the UK supplier accounts for VAT on his supply. However, where the supplier is in the UK and the customer is outside the UK the supply will be outside the scope of UK VAT.
Where the supply is to a non-business customer (B2C), the general rule is that the place of supply is the place where the supplier belongs.
Where the place of supply of a service is in an EU member state, that supply is outside the scope of UK VAT and is liable to the VAT rules in that member state and in no other country. If the place of supply of a service is outside the UK and EU, that supply is described as outside the scope of VAT altogether.
It is important to establish whether a supply of services is made to a relevant business person (B2B) or non-business customer (B2C). A person is a relevant business person in relation to a supply of services if:
(a) the person carries on a business, and
(b) the services are not received by the person wholly for private purposes.
For the updated internal HMRC guidance see: https://www.gov.uk/hmrc-internal-manuals/vat-place-of-supply-services
Note that the simplified guidance on the HMRC website has not been updated since December 2020:
https://www.gov.uk/guidance/vat-how-to-work-out-your-place-of-supply-of-services