VAT – Freight Transport Services
A new Revenue & Customs Brief has been published in relation to the VAT liability of freight transport services which take place wholly outside the UK. The Brief introduces a temporary administrative change to help correct an anomaly which arose following the introduction of the new ‘place of supply of services’ rules in January 2010.
Prior to the introduction of the new rules, the place of supply of freight transport services was the place where the actual physical supply took place. This meant that where these supplies were performed wholly outside the EU they were outside the scope of UK VAT.
From 1 January 2010, the place of supply became the place where the business customer belonged regardless of the place where the services were performed. This has meant that where the customer is in the UK, the place of supply is the UK. Therefore a UK customer must either account for UK VAT using the reverse charge (if the supplier is outside the UK) or must be charged UK VAT if the supplier is based in the UK. There are certain zero-rating provisions that apply if the supply is within the EU but these do not apply in the circumstance outlined above.
HMRC have accepted that this change has unintentionally affected a number of businesses in the UK and with effect from 15 March 2010 have stated that “where a supply of freight transport (or services closely associated with freight transport) would be treated as supplied in the UK, it will not be treated as supplied in the UK if the use and enjoyment of the services is outside the EU”. This change will not apply retrospectively.
HMRC are looking at introducing legislation to correct this anomaly but for the time being this new easement will apply.