If a withdrawal agreement is not in place between the UK and EU by 29 March 2019, the UK will cease to be a Member State and leave the EU with no deal. This scenario is referred to as a ‘hard Brexit’.
It is of course possible that the date of leaving the EU will be delayed but this would require a change in the UK law and it is not clear if this will happen.
In order to deal with a hard Brexit, the UK Government has implemented legislation which will come into force if the UK leaves the UK without a deal. This legislation makes changes to the VAT Act which is the main legislation in the UK.
The UK Government is not proposing to make any significant changes to the place of supply rules for services. This is in order to ensure that there are no conflicts between UK and EU law which could result in double taxation because of conflicting rules in the UK and EU. As such, the general rule for B2B services will continue to be that the place of supply is where the customer is established and the customer will account for VAT in their country by applying the reverse charge if the supplier is not established in the same country. The general rule for B2C supplies will continue to be where the supplier is established. There are a number of exceptions to the General Rule that shift the place of supply. For B2B services, the current rules will apply in the event of a hard Brexit and UK businesses will continue to need to be registered in the EU if there is a current obligation. Equally, EU businesses will need to be registered in the UK if there is a current obligation. For B2C services, there are more exceptions and there will be some changes to current treatment because the UK will no longer be a Member State of the EU. For example, supplies of certain services to UK private individuals by an EU supplier will no longer be chargeable.
Consequently, whilst there is currently a significant degree of uncertainty about how VAT will apply to transactions after 29 March 2019, it is not proposed that there will be any fundamental changes to the place of supply rules for services. However, we would recommend that specific guidance is sought in order to ensure that you fully understand the implications of a hard Brexit on your business and what proactive steps can be taken.