Whether to charge VAT on consultancy services or not will be answered in this article. Read on for a brief guide to this indirect tax, including what it is generally charged to, if consultancy and professional services are charged with UK VAT, and other relevant questions.
A Brief Introduction to UK VAT
Value Added Tax (VAT) was introduced in 1973. It is a consumption tax on most goods and services sold by VAT-registered businesses in the UK, added at every point of the supply chain.
Businesses must register for VAT if their taxable turnover exceeds £90,000 in a 12-month period or if they anticipate making such profits over the next thirty days. Registration is voluntary for businesses below this threshold. The de-registration threshold, on the other hand, is currently £88,000.
VAT normally applies to the following ‘taxable supplies’:
- Goods and services
- Hiring or loaning goods
- Disposing of business assets
- Items sold to staff (e.g., canteen meals)
- Commissions (e.g., sales, brokerage, etc.)
- Business goods used for personal reasons
- Non-sales transactions (e.g., bartering, part-exchange, gifts, etc.)
Take note that VAT rules for property transactions vary widely. They may be VAT-exempt or zero, reduced, or standard-rated depending on the circumstances. Certain goods and services, such as stamps, insurance, and education, are exempt from VAT.
Read our guide on VAT Notice 708: Key to Reduced to Zero VAT Rate Liability.
What Are Consultancy and Professional Services?
Consultancy refers to the application of existing knowledge to provide substantial guidance to a customer. The consulting sector consists of six major areas, which hundreds of other fields originate. They include:
- Financial advisory and technology consulting
- Strategy consulting
- Management consulting
- Operations consulting
- HR consulting
Most of the above are considered taxable services, except for financial services, in which certain supplies are considered VAT-exempt. Read on whether they are charged VAT or not.
Do You Charge VAT on Consultancy Services UK?
Generally, VAT is taxed on consultancy and professional services and depends on whether the customer is UK-based or not. If a UK customer, VAT is charged at the standard rate, whilst no UK VAT is charged for non-UK customers, regardless of whether the customer is in business or not, especially post-Brexit. Certain financial services, such as those related to insurance or credit, are VAT-exempt.
The ‘place of supply’ will determine where VAT is payable for a transaction. The rule of thumb is that VAT is due where the supplier is based for private consumers. Whilst for business customers, VAT is due where the customer is based.
Other Frequently Asked Questions
VAT rates remain at a standard 20% for most goods and services. The reduced rate is at 5%, and 0% applies to zero-rate goods.
Yes. Like other sectors and circumstances, businesses can reclaim VAT on consultancy fees if they were used exclusively for business purposes. Read our guide on how to reclaim VAT [overpayment, bad debt, & new build] for more information.
A rule of thumb is that VAT will be due on services provided to UK businesses or between UK businesses, unless there is an exception.
Services related to insurance, finance and credit, education and training, charities’ fundraising events, and others are not charged VAT.
Some types of products and businesses are VAT-exempt, especially charities. Businesses that sell VAT-exempt services and goods or do not participate in taxable activities are free from VAT.
Why Legend Financial for Your VAT Returns
Generally, there is VAT on consultancy services. However, if you are a VAT-registered business, you can reclaim the VAT you paid on consultancy fees. As a VAT-registered company, you will have several responsibilities to seriously comply with. HMRC treats VAT non-compliance very strenuously, with the anti-VAT fraud and evasion regulations in place.
You will need to regularly submit VAT returns, keep accurate VAT records, charge VAT on all taxable sales, and pay HMRC the right amount. Legend Financial’s VAT specialists are here to help ensure you are properly compliant with all your VAT obligations. Talk to our expert today!
