VAT on services in the UK: What businesses need to know

What counts as a service for VAT

For VAT, a supply of goods passes ownership of something physical. Almost everything else a business supplies for payment is a service. Common examples:

• Consultancy, legal, accounting and other professional advice
• Marketing, design, advertising and IT work
• Repairs, maintenance, cleaning and building work
• Training, coaching and event tickets
• Software subscriptions, streaming and other digital services
• Letting property and hiring out equipment

Before you charge VAT, work out where the service is supplied, known as the place of supply. That decides whether UK VAT applies at all.

VAT rates on services in the UK

When a service is supplied in the UK, it follows the UK VAT rates:

• Standard rate, 20%: most services, including consultancy, marketing, IT, repairs and cleaning.
• Reduced rate, 5%: a few services, such as converting a building into homes or renovating a home that has been empty for two years or more.
• Zero rate, 0%: for example passenger transport in vehicles with 10 or more seats, and installing energy-saving materials in homes (until 31 March 2027).
• Exempt: most insurance and financial services, education and training by eligible bodies, health services by registered professionals, and most residential letting.

Exempt is not the same as zero-rated. You charge no VAT on either, but you cannot usually reclaim the VAT on costs linked to exempt sales.

When to charge VAT on a service

The date VAT becomes due on a sale is called the time of supply, or tax point.

• One-off services: the date the service is finished. If you issue a VAT invoice or are paid before then, that earlier date is the tax point. If you issue a VAT invoice within 14 days after finishing, the invoice date is the tax point.
• Continuous services, such as retainers, subscriptions or support contracts: the earlier of the date you issue a VAT invoice and the date you are paid.

The tax point decides which VAT return the sale belongs on.

Free or discounted services

A service you give away for nothing is generally not a supply, so there is no VAT to charge on it. This is different from free goods, which can carry VAT on their cost.

A discounted service carries VAT on the price actually charged. If a free service is linked to exempt or non-business activity, you may not be able to reclaim all the VAT on the related costs.

Selling services to overseas customers

Where the service is supplied depends first on whether the customer is a business or a private person.

Business customers outside the UK

For most services, a supply to a business customer is made where the customer belongs. If that is outside the UK, the service is outside the scope of UK VAT, so you do not charge UK VAT. Keep evidence that the customer is in business, such as its VAT or tax number. For an EU customer, show its VAT number and the words "reverse charge" on the invoice: it accounts for VAT in its own country.

Private customers outside the UK

The general rule is that a service to a private person is supplied where the supplier belongs, so a UK business charges UK VAT. There are important exceptions:

• Professional and similar services, including consultancy, legal, accounting, engineering, advertising, data processing, information services and staff supply, are supplied where the customer lives when the customer lives outside the UK. They are outside the scope of UK VAT.
• Digital services sold automatically, such as apps, downloads and streaming, are taxed in the customer's country. See our guide to VAT on digital services.

Keep evidence of where each overseas private customer lives, such as their address and payment details.

Special rules for certain services

Some services follow their own place-of-supply rules, whoever the customer is:

• Land and buildings: services relating to land, such as building work, estate agency and property management, are taxed where the property is.
• Admission to events: taxed where the event takes place.
• Restaurant and catering services: taxed where they are performed.
• Passenger transport: taxed where the transport takes place, in proportion to the distance covered.
• Short-term hire of vehicles and other means of transport: taxed where the vehicle is handed over to the customer.

The full rules, and the exceptions to them, are in HMRC's VAT Notice 741A.

Buying services from abroad: the reverse charge

When a UK business buys services from a supplier outside the UK, and the service is supplied in the UK under the business rule, the overseas supplier does not charge UK VAT. Instead, you account for it yourself under the reverse charge. Common examples are software subscriptions, advertising and freelance work bought from overseas.

On your VAT return you add the VAT you would have paid to Box 1 and, if you can reclaim it in full, the same amount to Box 4, so the net cost is nil. The value goes in both Box 6 and Box 7.

If you are not VAT registered, the value of reverse-charge services you buy counts towards the £90,000 registration threshold.

Your VAT return as a service business

Once you are VAT registered you file a VAT return every quarter through Making Tax Digital software. For a service business, this is where each type of sale and purchase goes:

Most service businesses total these from their invoice list each quarter and keep the totals in a spreadsheet. That is all MTD software needs to file.

Common mistakes to avoid

• Charging UK VAT to an overseas business customer
• Charging UK VAT on consultancy or similar services to a private customer who lives outside the UK
• Forgetting the reverse charge on software, advertising or freelancers bought from abroad
• Leaving outside-the-scope sales out of Box 6
• Treating exempt services as zero-rated, and reclaiming VAT on the related costs
• Putting a sale on the wrong VAT return because of the tax point

Final thoughts

Three questions settle the VAT on most services: is the customer a business or a private person, where do they belong, and does a special rule apply. Get those right, keep evidence of your overseas customers, and put each sale in the right box on your VAT return.

Disclaimer: This guide gives general information, not advice for your business. If you are unsure how the rules apply to you, speak to an accountant or contact HMRC.