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All Change for the Bloodstock industry and Cross-border VAT

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Julie Butler - Expert Author

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29 March 2011

There have been a number of changes to cross-border VAT and this has had a significant impact on the bloodstock industry.

Before understanding the recent VAT changes it is important to understand some of the terminology involved:

B2B = Business to Business (not bloodstock to bloodstock)

B2C = Business to Customer

The customer is a non-VAT registered business, i.e. they are a breeder who is not in business; they are just a customer who is not VAT registered.

Mares visiting studs must be VAT registered

Here is the first VAT planning point. Most bloodstock mares visiting stallions abroad should be VAT registered as there is the “racehorse owners VAT registration scheme”, if not seek advice - urgently. There have been changes introduced on 1 January 2010 and further changes on 1 January 2011 which impact on the bloodstock industry. There has been huge confusion in the bloodstock industry as there is a mixture of ‘B’ - businesses and ‘C’ – customers, and confusion over defining land based services.

So let’s review the position from the beginning - 1 January 2010 - the date that the changes were first introduced. The main principle of the changes is that the place of supply for most B2B services is now where the customer is based rather than where the supplier is based. The principle is that this avoids a domestic charge of VAT in most cases where the customer is in business and based outside the UK – good news for simplicity in theory because it avoids the need for the customer to be charged VAT and then have to claim this tax back from the tax authorities in the supplier’s country through the Eighth Directive refund scheme.

The problem between the UK and Ireland

Whilst the broodmare is waiting to be covered, there is confusion which is still to be resolved because of different approaches to the interpretation of the B2B rule changes by the tax authorities in Britain and Ireland. In particular Irish studs have, on the advice of the Irish Revenue Commissioners, continued to charge VAT on the keep of mares at stud in Ireland where the owner has been a non-Irish business customer.

It is the UK view that the Irish should not have been charging VAT on the keep of the mare. However, the Irish stance is that “the service of horse keeping cannot be provided without land and buildings and is therefore intrinsically linked to the assets.” Therefore many consider that the service, if supplied in Ireland is liable to VAT here and is not chargeable under Article 47 of Directive 2008/8 and is not chargeable under Article 44 of that Directive on a reverse charge basis when supplied to a customer who is a taxable person located in another member state of the EU.

VAT has therefore been charged by a large number of Irish studs. This is a problem that needs a solution. The current charging by Ireland creates extra paperwork for the UK business. While UK business customers who have been charged VAT in this way may make a claim for a refund under the 8th Directive, this refund will initially be processed by HM Revenue and Customs in the UK, who may reject the claim as their view is that VAT should not be charged on a cross-border B2B supply of keep.

The charging of VAT by studs obviously creates a problem for non-VAT registered mare owners but again the first planning point is raised - why are you not VAT registered under the racehorse owners VAT registration scheme or have you looked at VAT registration?

The 2010 changes left a range of services unaffected by the new regulations, where the place of supply (for both B2B and B2C sales) is based on where the service is performed rather than where the customer is based. These particular services are listed below. But this outcome has changed from 1 January 2011 for B2B sales.

Services where the place of supply is where the service is performed

The place of supply for the following services was based on where they were performed until 1 January 2011 (para 4, sch 4A, VATA 1994):

  • Cultural, artistic, sporting, scientific, educational or entertainment services and any services ancillary to such services.
  • Services relating to exhibitions, conferences or meetings and any services ancillary to (including organising) any such services.

The big issue is the visiting mare to the UK stud, this includes the supply of nominations to any owner of a mare that belongs outside the UK and receives the service in a business capacity (B2B) then no UK output VAT is charged.

Where the visitor to the stud is a customer registered in another EU country, the UK supplier must complete an EC Sales List. The customer should account for VAT in their own country under the reverse charge procedure.

The UK supplier must make sure that they are satisfied that the customer is in business especially where the owner of the mare is non-VAT registered as is the case with many breeders in Ireland and other EU countries. Most UK breeders are VAT registered.

Summary of VAT changes that took place on 1 January 2010:

•         For most B2B (business to business) services, the place of supply is now where the customer is based rather than the supplier. If the place of supply is therefore outside the UK, no VAT is charged by a UK business on its sales invoices (EU country or non-EU country).

•         In the case of B2B sales to an EU customer, the customer deals with the VAT on his own return by making a reverse charge calculation, i.e. output tax is declared in Box 1 (based on the country’s own rate of VAT) and input tax reclaimed for the same amount in Box 4 (assuming the business gets full input tax recovery, i.e. that there are no partial exemption problems).

•         The UK supplier will complete an EU sales list to declare those sales of services to an EU business customer where no UK VAT has been charged.

•         The place of supply for B2C (business to non-business) sales is based on where the supplier is based, unless the customer is based outside the EU and the service is listed in VATA 1994, sch 4A para 16. In these cases, the place of supply is again where the customer is based (this paragraph of the legislation includes most professional services, e.g. the services of accountants).

Changes that have taken place from 1 January 2011:

•         For business customers (B2B), the place of supply in respect of the following services is where the events actually take place: services in respect of admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events (including fairs and exhibitions), and ancillary services relating to admission to such events.

•         For non-business customers (B2C), the place of supply of the following services is where the activities take place: services relating to cultural, artistic, sporting, scientific, educational, entertainment or similar activities (including fairs and exhibitions) and ancillary services relating to such activities, including services of organisers of such activities.

•         For other services linked to these categories, the place of supply will resort to the default position, i.e. the location of the customer for B2B sales. It is only the admission to cultural, artistic events, etc that will have a place of supply based on where the event takes place in the case of B2B sales.

The problem is that the key point with a land-related service is that the place of supply will continue to be where the land or building is based … and this has always been the case. When we talk about land-related services, this includes both professional services (architect, surveyor, estate agent) and construction services (electrician, plumber, bricklayer), as well as services provided by hotels. See Land-Based Services.

The UK is saying the mare visiting a stallion in Ireland is receiving the supply of a service for VAT purposes and Ireland are saying it is the supply with land.  


About the Author

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email; j.butler@butler-co.co.uk, Website; www.butler-co.co.uk

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification of which the 3rd edition is to be published shortly (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and the forthcoming Stanley: Taxation of Farmers and Landowners (LexisNexis)



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Article Published/Sorted/Amended on Scopulus 2011-11-14 12:06:28 in Tax Articles

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