Hello! We are a company incorporated in Hong Kong, providing furniture configuration services to Asian investors investing in UK real estate. Specifically, we source furniture from a UK supplier, and this supplier is responsible for installing the furniture in properties located in England. Currently, the supplier charges us for both the procurement and installation services, with all fees subject to a 20% VAT rate. My question is: As a Hong Kong-incorporated company (Hong Kong does not levy VAT, although I think this may be irrelevant, but I could be mistaken), since the goods are purchased in the UK and the services occur in the UK, are we still liable for VAT? Or can the supplier invoice us at a zero rate and claim a refund? Do we need to register for UK VAT? If we register, what benefits would we gain? Additionally, we pay referral fees to real estate agents who introduce clients to us; these fees are purely for services and do not involve goods. Can the referral fees be exclusive of VAT? If there are any questions, please feel free to ask. Thank you very much for your help!

VAT Applicability Rules: Supply of Goods and Supply of Services

Under UK VAT regulations, the imposition of VAT depends on the place of supply and the customer's status. For the supply of goods, if the goods are delivered or installed within the UK, the place of supply is generally the UK, so UK VAT applies. For the supply of services, if the customer is a business (B2B), the place of supply is generally where the customer is located; if the customer is a consumer (B2C), the place of supply is where the service is performed. However, certain specific services (such as services related to land) have special rules.

Furniture Procurement and Installation: Mixed Supply of Goods and Services

Your situation involves the supply of goods (furniture) and installation services. If the supplier sells the furniture to you and is responsible for installation, and the installation location is in the UK, then the supply may be treated as a 'supply of goods' because installation is ancillary. Under UK VAT law, since the goods are located in the UK at the time of supply and installation occurs in the UK, the supply is subject to UK VAT at a rate of 20%. As a Hong Kong company, you cannot be exempt from UK VAT simply because Hong Kong does not have VAT, as VAT is based on the place of supply, not the buyer's location.

The supplier cannot invoice at a zero rate unless the supply qualifies for zero-rating (such as export or specific international services). Since the goods are installed in the UK, this does not constitute an export, so zero-rating does not apply. If the supplier charges you VAT, they are entitled to reclaim input tax, but as a non-UK business, if you are not registered for UK VAT, you cannot reclaim that input tax.

Do We Need to Register for UK VAT?

If you do not have a fixed establishment in the UK and only make the aforementioned purchases, you generally do not need to register for UK VAT, as you are not making taxable supplies in the UK. However, if you provide services to UK customers (such as charging service fees to investors), you may need to register. After registration, you can reclaim the input VAT charged by suppliers, but you must account for VAT on your output supplies (if any). If you are only a purchaser, registration is not mandatory, but you can voluntarily register to reclaim input tax, provided you have taxable supplies.

In your case, if you charge service fees to Asian investors and the services relate to UK properties, this may constitute a UK supply, requiring registration and VAT payment. However, if you act merely as an intermediary and the service recipients are overseas, zero-rating or the reverse charge mechanism may apply. It is recommended to consult a professional tax advisor to determine specific obligations.

Handling of Referral Fees: Supply of Services and VAT

The referral fees you pay to real estate agents constitute a supply of services. If the agent provides introduction services in the UK and you are a business customer, the place of supply is your location (Hong Kong), so UK VAT does not apply. However, if the agent is in the UK and the services relate to UK land, special rules may apply. Generally, for B2B services, the place of supply is where the customer is located, so if you are in Hong Kong, the referral fee should be exclusive of UK VAT. However, the agent may need to account for VAT in their location, and if their services are deemed to be supplied in the UK, they may need to charge you UK VAT. Nevertheless, since you are in Hong Kong and the service recipient is not in the UK, zero-rating or the reverse charge may typically apply, meaning you would self-account for UK VAT (if registered).

To simplify, if the agent issues an invoice without adding VAT, you do not need to pay it. If they incorrectly add VAT, you can request a correction. It is advisable to confirm the agent's VAT treatment and retain relevant documentation.

Summary and Recommendations

  • You are liable for 20% UK VAT on the procurement and installation of furniture from a UK supplier, with no exemption available.
  • The supplier cannot invoice at a zero rate unless export conditions are met, but installation in the UK does not satisfy this.
  • You are not required to register for UK VAT unless you have taxable supplies in the UK. If registered, you can reclaim input tax but must account for output VAT.
  • Referral fees, as B2B services, generally have a place of supply at your location (Hong Kong), so they should not include UK VAT, but you need to confirm the agent's treatment.

Given the complexity of VAT rules and the cross-border nature of the transactions, it is strongly recommended that you consult a tax advisor with UK VAT experience to obtain compliance advice tailored to your specific circumstances.