Import of Services

The Reverse Charge

In the field of imports and exports of services the VAT legislation is a little complicated, interwoven, and sometimes with conflicting rules. The basis of the legislation lies in the EU harmonisation programme. The Sixth Directive provides for the exemption from VAT of certain international services supplied by the exporting person in one country and the charge to VAT by the importer in the other. The UK legislation follows this although there are some inconsistencies. The accountability to VAT by the importer is known in the UK as the reverse charge.

Accounting for VAT on Imports Subject to Reverse Charge

Where a service subject to the reverse charge is received, VAT must be accounted for by the recipient as if he or she had supplied it in the UK. The services must be liable to VAT at the standard rate in the UK. VAT is not due if the supply would ordinarily be taxed at the zero rate in the UK or would be exempt.

Services Subject to the Reverse Charge

The reverse charge applies to the specified services irrespective of where the importation has its origin. This can be contrasted with the rules appertaining to the export of the reverse charge services where liability may depend on whether the supply is to a person who is established in an EU Member State or outside the EU.

The services specified in the legislation - VATA 1994 schedule 5 are described as "Services supplied where received" and are listed 1 to 10 as follows:

  • Transfers and assignments of copyright, patents, licences, trademarks and similar rights.
  • Advertising services.
  • Services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services; data processing and provision of information (but excluding any services relating to land).
  • Acceptance of any obligation to refrain from pursuing or exercising, in whole or in part any business activity or any such rights as are referred to in paragraph 1 above.
  • Banking, financial and insurance services (including reinsurance, but not including the provision of safe deposit facilities).
  • The supply of staff.
  • The letting on hire of goods other than means of transport.
  • The services rendered by one person to another in procuring for the other any of the services mentioned in paragraphs 1-7 above.
  • Any services not of a description specified in paragraphs 1 to 8 above when supplied to a recipient who is registered under this Act.
  • Section 8(1) shall have an effect in relation to any service:
    • (a) which is of a description specified in paragraph 9 above, and
    • (b) whose place of supply is determined by an order under s.7(11) to be in the UK, as if the recipient belonged in the UK for the purposes of s.8(1)(b).