Omid Motaleb
by Omid Motaleb
Omid Motaleb is a VAT Senior Manager at Haines Watts, a leading provider of business advice and accounting services to owner managers operating in the UK and abroad. Contact Omid.
An area of particular focus in the VAT world is the place of supply rules. These rules dictate where a supply occurs and which party to the transaction must account for VAT thereon. This is particularly important for cross-border transactions, as these rules may result in VAT registration, and/or reporting obligations in other jurisdictions. With the exception of natural gas and electricity, the place of supply of goods is largely based on the physical location of the goods. On the other hand, the place of supply of services involves establishing where both the supplier and customer belong, the customer’s status, and the exact nature of the service being supplied.
The UK general rule for the place of supply of services depends on whether you supply your services to businesses or consumers. The place of supply of services to businesses (B2B) is where the customer belongs, and the place of supply of services to consumers (B2C) is usually where the supplier belongs.
There are various exceptions to the general rule depending on the nature of the supply involved, such as land-related services, admission to events, etc., and in certain circumstances you must also consider the use-and-enjoyment provisions.
As mentioned above, the place of supply rules also determines which party must account for VAT. Although the primary obligation rests with the supplier to ensure the correct VAT treatment is applied, customers should also be aware of place of supply rules to ensure VAT is charged correctly and whether they have a reporting obligation under the reverse-charge mechanism.
The curious case of an international artist
A US resident artist (Ms A) travels on UK and EU tours. She also sells merchandise as part of the programme. Fans can purchase this merchandise from the kiosks located in the venue on the night of the show. She procures this merchandise in the country where the show takes place.
Does Ms A need to be registered for VAT in the UK/EU? What are her VAT liabilities regarding her performing service and supply of merchandise?
The show must go on: Services
To start with, we need to establish contractually whether the artist’s customers are end-users (B2C), i.e. private persons, or a business (B2B), i.e. the venue. This relates to whether our artist effectively sells tickets for her show to individuals or is under contract with the venue to provide her services.
If Ms A provides her services to the venue (B2B), the place of supply is where the artist’s customer (the venue) belongs, which means the venue must account for VAT under the reverse-charge mechanism.
On the other hand, the place of supply of a B2C supply of service under the general rule would be where the supplier belongs – the US in this scenario. However, there is an exception for a B2C supply of admission to an event which shifts the place of supply to where it is performed. This means Ms A would have an obligation to register for UK/EU VAT and account for VAT thereon.
What about the VAT registration threshold, you may ask.
In the UK, for example, although the UK currently has a VAT registration threshold of GBP 85,000, it does not apply to non-established businesses or, in VAT terminology, to a non-established taxable person (NETP). As an NETP, Ms A must register and account for VAT on her B2C supplies of services in the UK, regardless of the number of tickets sold or the turnover in the UK.
VAT on selling merchandise
As we established above, the artist is an NETP. Therefore, selling a single item of merchandise whilst the goods are located in the UK, regardless of their value, creates a VAT obligation in that jurisdiction. Ms A must register for UK VAT and charge VAT on the supply of merchandise (goods). She will also be able to recover VAT on relevant business expenditures in that jurisdiction, such as VAT incurred on these goods, subject to the usual VAT rules.
Why is this a curious case?
Ms A has spoken to other people within her industry doing the same work as she is, and they have told her that she has no UK/EU VAT obligations. She believes them. I am curious as to why she believes them.
In her opinion, she is no different from hundreds of other artists.
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