Tax points for specific types of supply: Reverse charge services
Under section 8(1) of the VAT Act 1994, UK recipients of certain services received from abroad are required to account for VAT on those supplies as if they were the supplier. These are frequently referred to as reverse charge services. Regulation 82 of the VAT Regulations 1995 (see VATTOS2320) establishes the tax point.
Position prior to 1 January 2010
The tax point was either the date of payment or, in the case of non-monetary consideration, the last day of the VAT accounting period in which the services were performed.
Position from 1 January 2010
Implementation of the VAT Package from 1 January 2010 included changes to the time of supply rules for reverse charge services. Various tax points now apply depending on the nature of the supply.
For a single supply the tax point occurs on completion of the service, with an earlier tax point to the extent that the services are paid for before hand. It is unnecessary for a UK recipient of the services to consult, or notify, the supplier for the purposes of judging when a supply has been completed. It is the customer (as tax payer) whose determination of completion prevails for the purposes of applying the time of supply rules in these circumstances.
It is accepted that completion can sometimes be difficult to identify accurately, especially where the obligation falls on the customer. Nevertheless, in the vast majority of cases, information already available from existing business systems may normally be used to achieve broadly the right result.
On this basis the recipient of the service is expected to utilise information that is available to them to determine the most accurate time of supply. So, where a specific completion date is known (perhaps from the nature of the supply or information provided by the supplier), that date should be used. In many cases, however, the date of the supplier’s final invoice may be appropriate. Equally in others, the invoice might not necessarily represent the most accurate indicator of the date of completion. For example, where a supplier is known to routinely issue final invoices two weeks in advance of completion it is more accurate to identify completion as the date of the invoice plus two weeks.
As a general principle we accept reliance on an invoice date or any other reasonable methodology provided it does not produce a manifestly inaccurate overall result. Ultimately it is up to individual businesses to identify the most appropriate methodology for their particular circumstances.
For continuous supplies (see VATTOS9150) there is a tax point at the end of each billing or payment period (or on payment where this is earlier). For this purpose a “period” includes regular (for example monthly, quarterly, etc) billing/payment programmes of the kind typically adopted by suppliers of telephone services, leasing companies and the like. It also covers situations in which the billing or payment periods are not pre-ordained but, as they arise, cover specific successive periods. So, for example, where a bill is issued for the period 1 January to 10 February, followed by a bill covering 11 February to 5 April, and so on, each represents a period for the purposes of applying the rules for continuous supplies.
In the absence of billing or payment periods there is a compulsory tax point at 31 December each year. However, this only applies where a payment tax point has not arisen during the previous 12 months. So, for example, if inter-company management charges are applied annually, say to 30 April each year, provided they are paid either wholly, or in part, before hand a further tax point does not arise on 31 December. Where exceptionally a tax point does arise on 31 December (in which case, because the supply must have been ongoing for more than a year, it will have commenced sometime before 1 January of the same year) VAT will be required to be accounted for on the VAT Return covering December.
Continuous supplies - estimation
Some businesses may experience delays in their supplier notifying them of the charges relating to a billing or payment period. Where this extends to beyond the time they are due to account for VAT they may, as an interim solution, estimate the amount of VAT to be accounted for. This applies where:
- the supplies are subject to pre-ordained billing or payment periods; and
- the supplier fails to notify the amount due by way of consideration before the due date of the VAT return covering the end of the billing/payment period in question,
This is conditional on:
- the business notifying HMRC when they commence to use the arrangements (e-mail to email@example.com );
- an adjustment being made in the following quarter to reflect the amount of VAT that was actually due; and
- the understanding that this is a temporary arrangement that can be withdrawn at any time.