When goods are supplied together with installation services they are subject to VAT in the country where they are installed. This can trigger an obligation to register for VAT in that country.
Some EU member states offer simplifications using the VAT reverse charge rules, or a value based threshold, so VAT registration in that country by a foreign supplier may not be required.
If a business has a contract to supply installed goods, VAT must be accounted for in the country of installation. The result is that businesses have to register in that country and charge VAT on the supply there.
EU law allows for a simplification, enabling suppliers to pass the responsibility for the VAT accounting to their customer. That simplification has been adopted by the UK, and can be used so long as the following criteria are met –
- their customer is registered for VAT in the UK;
- the supplier is registered for VAT in another EU member state and not required to be registered in the UK for any other reason; and crucially
- the customer and HMRC are notified in time.
The notification to HMRC must include the supplier’s name and address, their VAT number, the date the installation or assembly began or will begin, and the name, address and VAT number of the UK customer, and must be sent no later than the date of issue of the first invoice relating to the supply.
HMRC previously took a lenient view of this requirement but now imposes it strictly. If the notification is late then HMRC will make the EU business register and account for VAT in the UK.
Not all Member States have adopted this treatment and for those which have, the detailed rules vary in crucial details. For this reason, contractors undertaking supply and install projects overseas should seek clarification on a country by country basis.
There is also a more limited simplification for installed or assembled goods imported from outside of the EU. Provided it is a one-off supply, the customer can be required to account for the import of the goods.
It is important to note that these rules only apply to the supply of goods with installation services and not to construction services.