What are land and building services?

These are services related to all forms of land and property, including any structure permanently fixed to the land. They do not normally include services related to machinery installed in buildings, except where the machinery is a fixture.

Such services include:

• Renting land or property, including hotel accommodation or a site at an exhibition;
• Building and construction work, including demolition, repair and maintenance;
• Professional services relating to land, including estate agents, solicitors, property management services, architects, surveyors and engineers;
• Hiring plant or machinery, with an operator, for work on a construction site.

Land and building services do not include:

• Tour operator services, such as reselling hotel accommodation;
• Seconding staff to a construction site;
• Services relating to land and property in general, rather than a specific property or site;
• Hiring plant or machinery without an operator;
• Accounting or tax services relating to income from land or property;
• The supply of a major interest in land (eg, a lease lasting over 21 years).

VAT position if the land is in France

The service is not subject to UK VAT, but is within scope of TVA, even if both the supplier and customer belong in the UK.

If the customer is not TVA-registered, a UK business may need to register for TVA and then charge TVA, according to French tax law.

If the customer is TVA-registered, a UK business can probably avoid liability for TVA as reverse charging will apply.

VAT position if the land is in the UK

Regardless of where the supplier and the customer belong, all services are within the overall scope of UK VAT.

Land and property services may be exempt from UK VAT, or they may be chargeable at the zero rate, the 5% reduced rate or the standard rate. This is a complex area of VAT in the UK, and reference should be made to VAT Notice 708 Buildings and Construction, and VAT Notice 742 Land and Property.

A VAT-registered UK business receiving a service relating to land or property in the UK, from a French business, may need to apply reverse charging.

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Reverse charging is the technical name for what is intended to be a VAT simplification measure. When a business makes a supply of certain services overseas, instead of having to register for VAT in the unfamiliar overseas country and then charge and account for it, the local customer (if VAT-registered) accounts for the VAT. Where a business sells its services across the whole of Europe, this can avoid it having to separately register for VAT in up to 26 other countries.

Where the customer is not registered for VAT in the country in which the service is supplied, there is no facility for them to be able to account for the VAT, and therefore the overseas business may still need to register for VAT in that country.

Reverse charging does not change the place of supply. A sale deemed to be in the UK will still be in the UK and subject to UK VAT. The reverse charge only affects who has the responsibility of accounting for local VAT in that country - the supplier or the customer.

Reverse charging does not apply to services provided between different offices of the same legal entity, for example where a French company provides a service to its UK branch.

Reverse charging in the UK - general procedure

A UK business which is VAT-registered has to account for the reverse charge when it receives any of the 3 classes of services set out in more detail below, for business purposes, from a supplier who belongs in France.

To apply the reverse charge, VAT at the usual UK rate (it may be at the standard rate, zero-rated or exempt) is calculated based on the value of the service received, and then entered as a liability on the UK VAT return by adding it to box 1. It may then reclaim that same amount by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input VAT.

Where the full amount of VAT can be reclaimed, there is no net cost to the UK business. Where the input VAT that can be reclaimed is restricted, for example due to the Flat Rate Scheme or the partial exemption rules, the effect of the reverse charge is to put the UK business in the same position as if it had received the service from another UK business instead of from France.

Reverse charging in the UK - Schedule 5 services

These are mainly intangible or intellectual services received from a French business, covered by Schedule 5 of the Value Added Tax Act 1994 (as amended).

If the UK business does not receive the service for a business purpose, reverse charging will not apply, and the French supplier is likely to charge TVA.

If the UK business is not registered for VAT, there is no reverse charge to apply. French TVA is likely to be charged, and additionally the value of the service will be included in the turnover of the UK business in determining whether it needs to register for UK VAT.

If, exceptionally, one of the following services is supplied from a French business to a UK business, but the service is effectively used and enjoyed outside the EC (for example, in Jersey), the reverse charge does not need to be applied in the UK. The services are:

• supplies of the letting on hire of goods (other than means of transport);
• telecommunications services;
• radio and television broadcasting services; or
• electronically supplied services.

Reverse charging in the UK - EC simplifications

These are services received from a French business, such as:

• Services performed in France on UK goods temporarily sent there
• Some freight transport services
• Most intermediary services supplied by a French agent

If the UK business does not receive the service for a business purpose, it should not supply its UK VAT number. Reverse charging will not apply, but the French supplier is likely to charge TVA.

If the UK business is not registered for VAT, reverse charging will not apply, but the French supplier is likely to charge TVA. The value of the service does not need to be included in the turnover of the UK business in determining whether it needs to register for UK VAT.

Reverse charging in the UK - other services

These are services received from a French business such as:

• Most services relating to land in the UK
• Most services related to a live event or physical activity in the UK
• Passenger transport in the UK
• Some freight transport services

If the UK business does not receive the service for a business purpose, it should not supply its UK VAT number. Reverse charging will not apply, but the French supplier may have to charge UK VAT.

If the UK business is not registered for VAT, reverse charging will not apply, but the French supplier may have to charge UK VAT. The value of the service does not need to be included in the turnover of the UK business in determining whether it needs to register for UK VAT.

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“SCHEDULE 5
SERVICES SUPPLIED WHERE RECEIVED

Crown Copyright acknowledged. Reproduced with permission.

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To be valid, such a register should contain:

• A description of the goods
• The date the goods were sent
• The date the goods were returned
• The reason for the movement (for example, to be repaired)
• The amount of any payment or payment in kind that is applicable.

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Goods from France may be received by a UK business on approval, or some other similar sale-or-return basis. The UK business has the right to return the goods at any time, and until they are accepted, they remain the property of the French supplier. There may alternatively be a time limit, after which time the UK business is deemed to have accepted the goods.

Under such an arrangement, the goods are not treated as standard imports of the UK business for VAT purposes until they are accepted. The French business will have to treat them as a transfer of own goods. It is likely that the French business will have to register for UK VAT, and then account for VAT on the value of the imported goods. It will then charge the customer UK VAT when the goods are accepted, which the UK business can reclaim subject to the normal rules for reclaiming input VAT.

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Where a UK business receives such goods from France, and stores them at its premises, they are treated as standard imports for VAT purposes.

Where goods are sent from France for the agreed, exclusive use of a UK business, and are kept in the UK at premises belonging to the French supplier, if the UK business is made aware of deliveries to that location then it is similarly obliged to account for UK VAT on the imports as standard imports.

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Where a UK business sends such goods to France, they are treated as standard exports.

Where a customer has not been found for the goods before they are sent, or the goods are available to more than one customer, they are treated as transfers of own goods as consignment stocks.

Call-off stocks are normally stored at the customer’s premises, however they can be kept at storage facilities of the supplier and still qualify as standard exports if the customer is made aware of deliveries into storage. Otherwise, the goods would have to be treated as consignment stocks.

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However, movements of goods that qualify as samples may be disregarded for VAT purposes. The conditions are:

• No charge is made for the samples;
• They are supplied for genuine business purposes as a sample of a product;
• Only one example of each product can be supplied to any one person, unless the additional items are for quality assurance testing.

This exemption is also available for goods sent for testing, provided that the supplier remains the owner of the items, and they are either returned to the manufacturer or destroyed after use.

A manufacturer can similarly send samples to a retailer for giving away to the general public. These would be outside the scope of VAT if:

• Neither the manufacturer nor the retailer charges for them;
• They are supplied for genuine business purposes as a sample of a product;
• The final customer only receives one sample of each product;
• The samples remain the property of the manufacturer until they are given to the final customer;
• Any samples not given away are returned to the manufacturer, or destroyed.

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This can cause problems when goods sold to a French customer are first delivered to another UK business to carry out a service on them before they are finally exported to France, as it would result in the French customer being charged UK VAT which they will be unlikely to able to reclaim.

To allow for this, the first UK business can still zero-rate the sale to the French customer if these conditions are met:

• The goods are only being delivered to the other UK business, and are not being sold to them; and
• The French customer is registered for TVA; and
• The UK business obtains a valid TVA registration number for the French customer and shows it (including the FR prefix) on the sales invoice; and
• The goods are exported from the UK within 6 months; and
• The UK business obtains and keeps documentary proof of export from the UK; and
• No other use is made of the goods while they are in the UK; and
• Full records are kept of the transaction and the movement of the goods.

The concession also applies where the goods are delivered to another UK location in order to be incorporated into some other goods for export from the UK.

As it is the UK business that will be liable to pay any UK VAT that should have been charged, in these cases the UK business should consider asking the French customer to pay a deposit equal to the UK VAT that would have to be paid if sufficient evidence of the removal of the goods cannot ultimately be produced. This deposit can be returned once sufficient evidence is received within the 6-month time limit.

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This can cause unnecessary complications when a UK business carries out a service on goods that have been sent from France to the UK to receive that service, before being returned to the owner in France. For example, some specialist machinery may need to be sent back to the manufacturer’s factory in the UK to be repaired, before being returned to France. Or, some work in progress may need to undergo a special process in the UK before it is returned to France as finished stock.

As a simplifying measure, the UK business does not need to account for VAT on either the import, the value of the service carried out or the subsequent export of such items if the following conditions are met:

• The customer is registered for TVA in France, and supplies their valid TVA number;
• The goods are returned to the customer in France once the service is complete;
• The UK business keeps proof of export of the goods from the UK; and
• The UK business records the movement of the goods in a temporary movements register.

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