On 2 August 2012 HMRC issued Brief 22/12 listing several changes in its VAT policy on land-related services.
The general rule is that VAT is charged in the country of the supplier or, for business-to-business (B2B) supplies, in the country of the customer. However, there are exceptions, one of which is “land-related services”, for which VAT is charged in the country where the real estate is located. This has always been a difficult area of VAT. For instance, when does a service qualify as “land-related” and when not?
The new Brief outlines HMRC’s views on what constitutes “land” (e.g. it includes buildings, permanently-installed machinery, etc.) and “services related to land”. However, these outlines are not very precise, including phrases such as: “In order for a service to be land related … it must have a sufficiently direct connection with a specific piece of land.”
The Brief gives a welcome list of examples, but this will be helpful only if your particular case falls within one of these examples. Worse, the Brief also lists several cases where policy had previously been clarified, but which has now changed. For example:
Stand space at exhibitions and conferences:
Previously, this was a supply of land.
In future, this will only be a supply of land if the service is restricted to the mere supply of space, without any accompanying services.
However, if supplied with accompanying services as a package (e.g. design, erection, security, power, telecommunications, publicity, hire of machinery, etc.), this “stand and services” package will not be a supply of land with land-related services. Instead it will be taxed under the general place of supply rules.
- Airport lounge access was not a land-related service, but will be now.
- Storage of goods used to be a land related service, but will not be in future if the supplier does not grant an exclusive right to a specific area.
- There are also new examples of land-related services (e.g. on-site security) and refinements (e.g. machinery hired with an operator, which will only be a land-related service if the supplier also has responsibility for the execution of the work).
As a transition period for businesses affected by the policy changes, businesses can continue to apply the previous VAT rules for three months from 2 August 2012.
However, businesses wishing to adopt the new treatment earlier can do so immediately or even retrospectively (subject to the normal “unjust enrichment” rules).
Any businesses whose services relate in any way to land or buildings should now review their VAT position, in case this has changed.