On 19 March 2019, HMRC updated VAT Notice 700/2, which sets out guidance for group and divisional VAT registration, to clarify the meaning of ‘bought-in services’ for the purpose of section 43(2A), Value Added Tax Act 1994.

Section 43(2A) ensures that services are correctly taxed in the UK by imposing a VAT charge due on the whole of the intra-group supply when a UK VAT group acquires certain services through an overseas member of the same VAT group. The value of the supply can be reduced to the amount of the bought-in services used in the making of the onward supply under paragraph 8A, Schedule 6, Value Added Tax Act 1994.

Bought-in services are services that:

  • would be taxable in the UK if made to a business belonging to the UK;
  • are received by the overseas establishment of a VAT group member; and
  • are subsequently used to make a supply of the UK establishment of another member of the VAT group.

From 1 April 2019, services bought-in by the business which, due to an intra-group charge, become a cost directly linked to supplies made by UK establishments, will be subject to VAT. Such services include costs for wages and remuneration of the overseas business’ own directly employed staff.

A copy of VAT Notice 700/2 can be viewed here