On 1 January 2010, the basic rule for the place of supply of services for business-to-business (B2B) transactions for most services changed from where the supplier is established to where the business customer is established (see Charity Finance, November 2009). However,  the position for freight transport gets  more complicated.

EU legislation allows for freight services relating to the import or export of goods to and from the EU  to be exempt from VAT – in the UK  such services are zero-rated by way  of UK legislation. EU legislation also allows for the exemption of certain international freight services, ie the movement of goods outside the EU. However, the UK has  no legislation covering this and HMRC now requires UK suppliers of B2B non-EU freight services to charge VAT. B2B supplies to customers in other member states fall under the “reverse charge” rules identified above and the VAT treatment is dictated by the legislation extant in that member state. VAT was not chargeable on non-EU freight transport services prior to 1 January 2010. By way of example, a UK transport company transports goods from the UK to the US, and also transports goods from China to the US for a UK customer. Prior to 1 January 2010 VAT would not  be chargeable on either transaction. However, from 1 January 2010 the export of the goods from the UK to the US will remain zero rated, but the transport of goods from China to the US will attract VAT at the standard rate.