VAT on Services — UK, Overseas B2B, and B2C Explained
Unlike goods, VAT on services depends on whether your customer is a business or a private individual, where they are based, and whether the service is bundled into a goods price or invoiced separately. Getting this wrong — particularly on exports — is a common and expensive mistake.
UK Customers — Always 20%
If your customer has a UK address, every service you provide carries 20% VAT. Design, restoration, delivery, installation — no exceptions, regardless of whether the customer is a business or private individual.
Overseas Business Customers (B2B) — Separate Invoice Line
When a service is billed as a separate line to an overseas business customer, it falls outside the scope of UK VAT. The customer self-accounts for VAT via the reverse charge mechanism in their own country.
To support this treatment you must obtain and keep evidence of their business status — their VAT number or local tax ID. Without this, HMRC may treat the supply as B2C and require you to charge 20%.
Overseas Private Customers (B2C) — Still 20%
If your overseas customer is a private individual and you are billing the service as a separate line, 20% UK VAT applies. There is no zero-rating for services to B2C customers regardless of where they are based.
Bundled into an Export — Zero-Rated
The one exception is when the service is not shown as a separate line but is folded into the price of exported goods. In that case, it follows the zero-rated goods treatment.
| Scenario | VAT treatment |
|---|---|
| Service to UK customer (any) | 20% VAT |
| Separate service line — overseas B2B | Outside scope, customer reverse-charges |
| Separate service line — overseas B2C | 20% UK VAT |
| Service bundled into exported goods price | Zero-rated with the goods |
Bundled vs Unbundled — A Practical Example
Bundled (zero-rated): You restore and deliver an antique chair to a customer in Paris. The restoration and delivery are included in the goods price — one line on the invoice. The whole amount is zero-rated as an export.
Unbundled (taxable): You invoice the same order with separate lines for the chair (£1,500), restoration (£300), and delivery (£200). The chair is zero-rated. The restoration and delivery lines each carry 20% VAT — adding £100 to the invoice unless the customer is an overseas business, in which case those lines are outside scope.
The invoice structure directly determines the tax treatment. Decide before you quote.
Frequently Asked Questions
Q: Does the reverse charge mean I do not collect any VAT from an overseas B2B customer? A: Correct — for separately billed services to an overseas business, you do not charge UK VAT. The customer accounts for the equivalent of VAT in their own country using the reverse charge. You still need their VAT or tax ID on file as evidence.
Q: What if I am not sure whether my overseas customer is a business or private individual? A: Ask them and document the answer. If they provide a VAT number, treat them as B2B and keep the number on file. If they cannot provide one, treat them as B2C and charge 20% UK VAT.
Q: Can I always bundle services into the goods price to get zero-rating? A: You can if the services are genuinely part of the goods price and not separately negotiated. HMRC looks at the economic substance — artificially bundling separately agreed services into a goods line to avoid VAT is a risk. Get advice before restructuring invoices for tax purposes.
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