Place of Supply Rules – Services

In a recent case heard by the First-Tier Tribunal Hastings Insurance Services Limited, a UK based company, provided claims handling services to an associated company, Advantage Insurance Company Limited, based in Gibraltar.

The input VAT incurred by Hastings in relation to the services provided to Advantage would only be available for recovery if the place of supply for the relevant services was outside of the EU (bearing in mind that the place of supply of determined by the place that that the customer is established for the purposes of receiving the relevant supply). HMRC blocked VAT recovery on the basis that Advantage had a ‘fixed establishment’ in the UK and as such belonged in the UK for the purposes of receiving supplies from Hastings.

In order to determine whether this input VAT was indeed recoverable by Hastings, the First-Tier Tribunal considered the place of supply rules. HMRC argued that as Advantage used Hastings UK-based personnel and resources in carrying out business activities, this constituted a fixed establishment in the UK. On examination of the contracts between the two parties, the First-Tier Tribunal found that, despite the parties working closely together the functions between the two businesses were clearly defined and as such, Advantage did not have a fixed establishment in the UK. The First-Tier Tribunal therefore ruled that Hastings was able to recover input VAT relating to services provided to Advantage.

If you or your clients provide or receive services outside the EU and are unsure of the VAT implications, please call our free VAT helpline for expert advice.

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