The general rule for cross-border business-to-business transactions is that the place of VAT supply is deemed to be where the supplier is. But, this is being reversed: from 1 January 2010, the general rule will be that the place of supply in a business-to-business context will be where the recipient is.

Where the supplier of the services is based outside the UK, the recipient will usually be responsible for paying the VAT under the reverse charge mechanism (ie the recipient acts as both the supplier and the customer, and thus accounts for the VAT as if it were the supplier and then recovers the VAT as a customer). For most businesses, this will make little financial difference. But, for those companies that are VAT-exempt (eg banking and insurance) there may be major implications. In particular, those companies that have outsourced work (eg) to India will now find that the outsourced work is subject to UK VAT as from January. Source: Pinsent Masons.