Q- My client is a VAT registered luxury carpet and flooring specialist, and they have a contract to supply and fit a hand-woven carpet in a VAT registered boutique hotel in Italy. Will my client need to charge VAT? He will be using a VAT registered fitter in Italy to actually install the carpets.
A- When a business is contracted to install goods on land or within a property, it can be difficult to decide whether that is a supply of a land-related service or of installed goods. Whilst the place of supply for both would be the same, being in the first instance where the land is, and in the second instance where the goods are installed, the rules to determine who must account for the VAT differ.
A land related service is a service where the land or property is an integral part of the supply, such as a lease, or one which is intended to alter the physical or legal status of the land, such as building work or conveyancing. Any goods supplied such as building materials are subsumed in the service. However, where there is a contract to supply goods which your client is also required to install or assemble, either himself or by engaging a subcontractor, then this is a supply of installed or assembled goods.
For those who are interested in the legislation, the place of supply rule for services relating to land can be found in VATA1994 Schedule 4A, Part 1, paragraph 1. The relevant manual is VATPOSS07000. The rule for installed or assembled goods is set out in VATA1994 s.7(3), and the manual is VATPOSG3400.
As your client is supplying carpet, the installation by the third party will be ancillary because the main supply is of the goods. The place of supply is in Italy as that is where the goods are to be installed, and the client will probably be liable to register for VAT there. VAT Notice 725 section 11 explains the UK position on this. If required to register, accounting for output tax and recovery of input tax will be subject to the normal Italian rules governing VAT registered businesses there.
Some member states operate a simplification measure whereby the VAT registered customer is permitted to account for the VAT, removing the requirement for a supplier business to register there. As always where another member state is involved we recommend taking professional advice locally to confirm their interpretation of the EU directive, and to check the availability of concessions.
We would expect that the Italian fitter would be treated as making a supply of working on someone else’s (your client’s) goods, which falls under the general place of supply rule. The place of supply under the B-B general rule is where the customer belongs, so as your client is the customer this would make it subject to VAT in the UK, accounted for by your client applying the reverse charge procedure. However, if the Italian tax authority determined the fitter’s service to be land-related, he would charge Italian VAT. If the simplified procedure is available and taken up, your client may still be able to recover the VAT on expenses incurred in Italy, including the fitter’s fee, but by using the EU refund scheme. VAT Notice 723A sets out the process for claiming, and for information specifically on the Italian rules regarding claims please follow the link:https://europa.eu/youreurope/business/vat-customs/refund/eu-businesses/italy/index_en.htm
When supplying a land-related service, again the supplier may have to register in the member state in question; however, some member states have extended the reverse charge rule to cover these services when supplied to a VAT registered business. This is likely to be mandatory, rather than optional like the simplification for installed goods, and therefore the supplier may not be allowed to register if their only customers are VAT registered.