Independent VAT Consultant
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EU VAT horror: Use and enjoyment rules

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UK businesses could be breaching EU rules for supplying services to EU customers because of ‘use and enjoyment’ laws. Neil Warren gives a practical example involving France.

16th Jun 2021
Independent VAT Consultant
Columnist
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Imagine the following situation: one of your long-standing clients has made a lifestyle decision to relocate from the UK and permanently live in France. But she still wants you to complete her personal self assessment tax return each year and you will charge her a fee of £500. What is the VAT position?

Pre-Brexit general rule

Before 1 January 2021, the VAT solution was this: you would charge £500 plus UK VAT of 20% because of the general business to consumer (B2C) rule for a supply of services. The key issue is where the supplier is based - the UK in this situation. So far, so good.

Post-Brexit: Use and enjoyment rules

EU law gives a Member State the right to move the place of supply to the country where a service is used and enjoyed if that is different to the place of supply with the general business to business (B2B) and B2C rules.

Some countries have taken advantage of this opportunity in a big way, and others have not. The position is not the same for all EU countries.

 For supplies made by non-EU suppliers in to France:

  • The law (article 259 C of the French VAT Code) brings the place of supply to France on services when the customer is a non-taxable person established or domiciled in France;
  • The supplier is based outside the EU; and
  • The service is effectively used and enjoyed in France.

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Replies (28)

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By Paul Crowley
16th Jun 2021 20:35

Eu Countries do what they like, ignoring established rules.
No change there

Bexit UK support now 70% and rising
A change there that is the result of EU activity

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Replying to Paul Crowley:
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By Charityguy
17th Jun 2021 14:47

Utter nonsense!

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Replying to Paul Crowley:
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By Caz2000
17th Jun 2021 16:47

70%? Do you have evidence for this?

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Caroline
By accountantccole
17th Jun 2021 09:33

We'll take on any French clients that people don't want any more ;-)

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Replying to accountantccole:
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By mhkay
17th Jun 2021 09:43

We're in the software business rather than the accountancy business, but we often find ourselves trading via intermediaries whose only added value is a tax presence in the customer's country.

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By Philipbwood
17th Jun 2021 09:38

Electronic services .... so if there is no paper involved, and all is done electronically including approval and submission, would that avoid the French Inquisition?

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Replying to Philipbwood:
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By richards1
17th Jun 2021 09:51

Like it: no way they can find out and if its from a UK bank no chance.

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By IJM2016
17th Jun 2021 09:40

Neil - will all B2C services from UK to EU not be caught by the changes on 1/7 anyway?

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By rkjh
17th Jun 2021 10:02

Surely in this case the service is neither used or enjoyed in France. The supply is doing something in the UK to satisfy UK tax requirements. There is no use in France. Neither is there any enjoyment in France (or even in the UK) from filling a tax return!

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Replying to rkjh:
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By Wilbur
21st Jun 2021 16:44

In which case, should UK VAT be charged ?

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Jason Croke
By Jason Croke
17th Jun 2021 10:03

One could consider applying for a One Stop Shop (OSS) VAT return, that would cover the sales (of services) to French consumers and also any other EU consumers where the place of supply is deemed to be where the customer is based.

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Replying to Jason Croke:
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By bessielung
17th Jun 2021 16:35

The practical difficulty that many UK businesses face is that they don't know where to find out whether the services they supply to EC are subject to the use and enjoyment provision for different EC countries. HMRC has provided no guidance for it and I am not sure there is much information from European Commission either
.

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Replying to Charityguy:
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By bessielung
21st Jun 2021 17:20

Notice 741A is only from the UK standpoint but takes no account of the new rules from the EC perspective, i.e. EC could disagree the UK place of supply of services rules from 1 July unilaterally.

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Replying to Charityguy:
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By bessielung
21st Jun 2021 17:23

N

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By Roland195
17th Jun 2021 10:37

But for the UK business who is going to know or care that French VAT should have been charged and what consequence is there?

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Replying to Roland195:
Caroline
By accountantccole
17th Jun 2021 11:35

Self assessment and there is the whole defrauding a foreign tax authority.... ML...

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By vstrad
17th Jun 2021 10:52

Could we not just scrap VAT and replace it with a simple sales tax that doesn't require years of litigation to determine whether something is a cake or a biscuit?

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Replying to vstrad:
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By I.Roxan
17th Jun 2021 12:02

Unfortunately, a simpler sales tax is unlikely to happen. The cake or biscuit distinction is a relic of UK purchase tax that got carried over to VAT in 1972.

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Replying to I.Roxan:
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By [email protected]
19th Jun 2021 16:03

In this scenario, it's french vat eu not UK vat so would not help.
Gst would only exist in UK. Gst has its similar pitfalls

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By Alan Daines
17th Jun 2021 11:25

More questionable is why the client is still completing self assessment tax returns in the UK at all, if they are expatriated? This specifically is relevant to the French Vat code Art 259 quoted above which applies when 'when the customer is a non-taxable person established or domiciled in France'

Under EU regulations, EU residents have to submit a tax return in the country they are domiciled for more than 180 days in any 365 day period, so in the example France.

The more likely situation is that the client is hoping to be invoiced in France and avoid having 20% added to the invoice! If of course they continue to maintain any UK address, a relative perhaps, you could put that address on the invoice and charge VAT as normal, leaving the client to sort out the recovery of the VAT element.

Finally, I think the use and enjoyment for the service of completing a self assessment tax return is in fact in the UK, the invoice to address being totally irrelevant to this calculation. This is because you are completing the return, albeit online, in the UK and the benefit of this is enjoyed in the UK by virtue of the HMRC self assessment return being filed with them.

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Replying to Alan Daines:
Caroline
By accountantccole
17th Jun 2021 11:34

Lots of non UK residents have to complete UK tax returns! UK have first taxing rights on certain income streams, rental of UK property, government pensions for a start. I'm French resident and still do a UK return, declaring worldwide income in France and using credits as applicable where tax has already been paid

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Replying to accountantccole:
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By Alan Daines
17th Jun 2021 12:31

In that case your UK self assessment would include the expense relating to its preparation (the subject of this thread) and you would then file your annual French tax return off setting details of your UK Self assessment UK taxed income under the dual tax treatise.

The expense of preparing the UK return relates to UK activities, therefore the use and enjoyment is in the UK. It is therefore nothing to do with the French and has already been finally disposed of by inclusion in the UK return.

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Replying to Alan Daines:
Caroline
By accountantccole
17th Jun 2021 13:39

Good job I'm a UK accountant working closely with our french sister company....

If I had tax return costs they wouldn't be deductible in my scenario or many of my clients' scenarios.

I'm not convinced you can argue use and enjoyment is really in the UK for a French resident with UK income who hasn't visited the UK for many years (again I have clients like this).

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Replying to accountantccole:
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By Alan Daines
17th Jun 2021 16:11

I lived in France for 14 years before moving to Belgium and have filed tax returns in all 3 countries as well as Ireland, although not necessarily in the same tax years.

The service is most certainly used and enjoyed in the UK, it relates to the submission of the the UK self assessment tax return, which itself concerns UK taxable income. The position giving rise to the need for a self assessment return is also UK based.

It was in fact only the UK income itself that gave rise to the need for a self assessment return because it was enjoyed in France and not the preparation of the Self Assessment return itself. All I am left to 'enjoy' in this scenario is opening the UK accountants invoice, because all the other 'enjoyment' in relation to the service has been in the UK - as in 'what an enjoyment, my self assessment in relation to my UK derived income has been completed and filed in the UK before the due date'.

It is irrelevant where the invoice is addressed to. In any event, in this situation if in doubt ask HMRC for a written ruling.

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Replying to Alan Daines:
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By Wilbur
21st Jun 2021 16:50

Surely, the invoice address is relevant; address in the UK, add VAT, address not in the UK, don't add VAT (or, maybe add VAT [if applicable] !)

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Replying to Wilbur:
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By Alan Daines
21st Jun 2021 20:11

When the customers address is unknown the place of supply would be the suppliers address.

2.1 The place of supply
For VAT purposes, the place of supply of a service is the place where that service is treated as being supplied.

I think this article incorrectly suggests that the customers address in France is the PPOB (Principle Place of Business), and in fact they are not carrying on any business in France, they simply live there. They have a UK taxable income. If for example that income relates to a pension then they are a B2C customer:

3.6 Usual place of residence
Individuals receiving supplies in a private capacity are treated as belonging in the country where they have their usual place of residence.

You send the invoice to them in France but you charge VAT as they are an B2C individual.

6.2 B2C supplies
The general rule for B2C supplies of services is that the place of supply is where the supplier belongs, irrespective of the location of their customer.

If they are completing a self assessment return in relation to a UK rental income, then they are not a business:

Rental ownership is an investment, not a business, if you do it to earn a profit, but don't work at it regularly and continuously—either by yourself or with the help of a manager, agent, or others

In this example the customer is an individual and you charge VAT on your invoice.

HMRC also gives the following two useful examples;

A UK supplier contracts to supply advertising services. Its customer has its business establishment in Austria and a branch in the UK which is a fixed establishment. Although day-to-day contact on routine administrative matters is between the supplier and the UK branch, it’s the Austrian establishment’s services that are being advertised. The supplies are received at the overseas establishment.

Conversely to the above it follows that in the example given in this article, where the customer is based in France but does not conduct any business in France that is related to the self assessment return, but has a taxable income from the UK, the place of supply for accountancy services such as completing a self assessment tax return is the UK because the income, the self assessment return, and the subject of the return itself (UK income) all relate to UK activities. There is no fixed establishment outside the UK and there may not be one in the UK, in which case the address to put on the invoice is the suppliers address.

The 2nd HMRC example confirms:

A business is incorporated in the UK but its sole director lives in Germany. It does not have a permanent physical presence at the registered address and the day-to-day business is undertaken from the home address of the director (in Germany). The establishment most closely connected with the supply is the business establishment in Germany.

So in this example a UK incorporated company is found to have its place of supply in Germany and you cannot charge VAT on your invoice.

To conclude, it is the case that the place where business is carried on is the relevant place of supply. The customer in the example is not carrying on any business in France in relation to the UK taxable income in question. The place of supply is the UK.

https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a

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Replying to Alan Daines:
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By Charityguy
10th Jul 2021 10:52

Wrong

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