Contractors' Questions: Does UK VAT cover Irish agents?

Contractor's Question: I started a new contract in November 2009 when I was working on site for a company based in North London, and through an agency based only in Dublin.

I invoiced the agency in Dublin for November and December and added VAT as I would normally do for a UK based agency. But the agency refused to pay my invoice as they claim they have no way of claiming VAT back from the end client i.e. the company where I worked on site.

The agency claim that they are not allowed to charge VAT on their invoice to the UK company according to Irish/EU law. However I believe that I am obliged to pay VAT to HM Revenue & Customs based on a call to the VAT advice line and my reading of the HMRC website. Surely my limited company is not now obliged to pay VAT of several thousand pounds to HMRC for which I have not received payment (from the agency)? From 2010 onwards there is no issue, as I have been invoicing their London office, which the agency opened in January.

Expert's Answer: The situation you have encountered is a common occurrence for UK contractors working in Ireland, and vice versa. But the agency is correct: UK VAT should not have been charged. The supply of services is between the contractor's UK company and the agency, which in November/December was, I presume, an Irish registered company. The service would fall into a category known as "Fourth Schedule" services, i.e. a specific list of services set out in the Fourth Schedule of the VAT Act 1972. Services listed in the Fourth Schedule are taxable on a reverse charge basis when supplied to taxable persons established outside the State.

In layman's terms, the place of supply determines whether or not VAT is charged, and in the case of a UK company providing "fourth schedule" services to an Irish company, the place of supply is where the recipient belongs, i.e. Ireland. When a UK company supplies a service where the place of supply is Ireland, no UK VAT should be charged. The same applies for Irish contractors working in the UK: if providing the service to a UK agent they would not charge Irish VAT.

For your interest, the following are Fourth Schedule Services as per the VAT Act

1. Transfers and assignments of copyright, patents, licences, trade marks and similar rights;

a) hiring out of movable goods other than means of transport;

2. advertising services;

3. services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, data processing and provision of information (but excluding services connected with immovable goods);

a) telecommunications services;

b) radio and television broadcasting services;

c) electronically supplied services;

d) the provision of access to, and of transport or transmission through, natural gas and electricity distribution systems and the provision of other directly linked services;

4. acceptance of any obligation to refrain from pursuing or exercising in whole or in part, any business activity or any such rights as are referred to in paragraph (i);

5. banking, financial and insurance services (including re-insurance [and financial fund management functions] but not including the provision of safe deposit facilities);

6. the provision of staff;

7. the services of intermediaries who act in the name and for the account of a principal when procuring for him/her any services specified in paragraphs 1 to 6

I hope the above is of some assistance. Should you need any further guidance please feel free to contact me.

The expert was Páraic O'Dowd, tax partner at Prima Accountants, an accountancy firm for contractors.