Businesses making land-related supplies across borders need to consider whether they are required to register for VAT in the country where the work is undertaken.
Unlike most supplies to business customers, land and property services are VATable in the country where the land is situated. This is not necessarily the place where the supplier or the customer belongs.
Definitions of land-related supply are complex. Currently, a land-related supply is defined as selling or letting land or buildings, granting a licence to occupy land or buildings including providing hotel accommodation, professional services directly linked to land or buildings, such as estate agents, architects or engineers and works of construction, demolition, repair or maintenance of a building or civil engineering work. The European Commission has published 55 pages of explanatory notes on this topic, which is evidence of the complexities of the issue.
UK suppliers doing work on land or buildings in another country will need to check whether that country allows the customer to account for the VAT using the reverse charge mechanism. If work is performed for a non-business customer, the UK supplier is likely to be required to register for VAT in that country. Local advice should be sought to confirm.
Overseas suppliers doing work in the UK can rely on the customer to account for the VAT under the reverse charge mechanism, but only if the customer belongs in the UK and is VAT registered here. Increasingly, projects are undertaken by a non-UK based construction company using subcontractors they are familiar with from their home market. Those subcontractors are being caught out, in that they have to register for VAT in the UK because their customer does not belong in the UK.
HMRC used to take a light touch in applying the requirement to register for VAT in the UK. However, they are now frequently advising overseas contractors that they must register. These contractors come into view of HMRC by submitting EC VAT refund claims for the costs they have incurred in undertaking the project. Formerly, many overseas contractors were allowed to register, even though their customer was able to apply the reverse charge. Such applications are now often rejected.
It is often difficult to distinguish between a land related supply and a contract for the supply and installation of goods, which are treated differently for VAT purposes. For example the installation of a ventilation system during the construction of a building. VAT Notice 741A gives the example of an item, equipment or machine permanently installed in a building or construction which cannot be moved without destroying or altering the building or construction. Such a supply would be of a land related services, whereas the supply of ventilation machinery installed within a building, but not forming part of it, would not be a land related supply.
Due to the complexity of the rules, particularly when undertaking cross border contracts, local advice should be taken at the contract stage of any project. Failure to submit the correct notifications to local tax authorities, at the correct time, can lead to registration requirements and problems recovering VAT incurred.
Authors: Robert Facer and Sarah Barron, HLB UK, Menzies LLP
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