Blogger
Share this content
0
12
11311

VAT on non-UK "place of supply"

We have a consultant working through a UK registered (and possibly VAT registered) Ltd Co, supplying services in NL to a Dutch management company.

According to the HMRC website since the "place of supply" is outside the UK, no UK VAT is due.

But should the invoice to the NL customer charge VAT, if so at what rate, and to whom should it be rendered as a return.

Also if the UK Ltd Co is flat-rate registered, should a NIL VAT return be made since no UK VAT supplies are being made, otherwise could be paying tax to HMRC that has not been received ... alternatively should the UK VAT registration (or flat rate election) be delayed to avoid such expensive complications.

Replies

Please login or register to join the discussion.

avatar
20th Sep 2012 12:06

As it is a B2B supply of services, the Place of supply is where the recipient is based (Netherlands) and no VAT is charged on the invoice as the customer applies the reverse charge. .If the supplier is VAT registered they will need to complete an EC Sales listing. Without knowing the exact detail of the business I cannot see any benefit on being on the FRS but a 'normal' Vat registration will allow for the recovery of VAT on UK expenditure.

You may want to include 'Article 44 Vat Directive' on the invoice to demonstrate reverse charge being applied to the sales invoice.  

Thanks (1)
avatar
20th Sep 2012 13:01

The Article 44 page suggests VAT should be charged ...

Thanks Shaun.

You say "no VAT is charged on the invoice as the customer applies the reverse charge"

But

http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/vat_on_s...

"Example 19: For accountancy services supplied by a Bulgarian company to a business customer with his place of business in Austria, Austrian VAT must be charged. If the Bulgarian supplier is not established in Austria, the Austrian customer will account for VAT under the reverse charge mechanism."

Substitute UK for Bulgarian, and NL for Austria and it suggests the consultant should charge NL VAT on the invoice ... but should mention Article 44 I guess.

But where then should the Ltd Co send the VAT that has been paid ? Is it one of the boxes on the UK VAT return that will result in the funds going to HMRC through a VAT payment ?

If so then any Flat Rate VAT rate paid on gross invoice would not properly account for for invoiced VAT since it is at a lower rate than UK VAT.

Edit

Just seen HMRC Flat Rate guide:

if your supplies are outside the scope of VAT, leave them out of your flat rate turnover.

Since place of supply is outside UK then the supplies are outside UK VAT, hence I guess they should be left out of Flat Rate sums.

Thanks (0)

Substitution

mikewhit wrote:

"Example 19: For accountancy services supplied by a Bulgarian company to a business customer with his place of business in Austria, Austrian VAT must be charged. If the Bulgarian supplier is not established in Austria, the Austrian customer will account for VAT under the reverse charge mechanism."

Substitute UK for Bulgarian, and NL for Austria and it suggests the consultant should charge NL VAT on the invoice ... but should mention Article 44 I guess.

Let's do that Mike.  Let's substitute UK for Bulgarian and NL for Austria:

"Example 19: For accountancy services supplied by a UK company to a business customer with his place of business in NL, NL VAT must be charged. If the UK supplier is not established in NL, the NL customer will account for VAT under the reverse charge mechanism."

The UK Ltd doesn't charge any NL VAT at the lower rate, because it's not NL registered. The NL customer charges itself the NL VAT.

Thanks (1)
avatar
20th Sep 2012 13:25

HMRC text is not explicit

The HMRC text does not necessary imply no VAT charge is to be made.

"... place of business in NL, NL VAT must be charged" - note 'must'

"the NL customer will account for VAT under the reverse charge mechanism." - well that sounds like something for the NL customer to do, but it says nothing about the UK supplier, in particular it does not say that the NL VAT should not be charged by the UK supplier if he is not established in NL (also see 'must' in previous paragraph !).

I'm not trying to "prove" you wrong, just saying that the HMRC text should say what it means - if that is what it means !!

Thanks (0)
avatar
20th Sep 2012 14:40

Mike

Vat can only be charged in one country and that is where the supply is made. The reverse charge ensures VAT is chaged in the NL as the customer also acts as the supplier for VAT accounting purposes. So if VAT is accounted for in NL it cannot be accounted for in the UK on the same supply. 

Thanks (2)
avatar
20th Sep 2012 15:19

OK point understood

OK that's good. We will see if the customer has any difficulty with that !

So in the invoice near the bottom row, we would want to see

Services € 999.00VAT      €   0.00 (Article 44 VAT Directive)

or something like that ...

Thanks (0)
avatar
20th Sep 2012 15:46

that is fine

Thanks (0)
avatar
21st Sep 2012 12:43

Remember

To get your customers VAT number quote this on the invoice with the reference "Subject to reverse charge" and complete EC Sales List

Thanks (0)
avatar
24th Sep 2012 20:15

Explanation?

For the benefit of the confused can someone clarify the following specific questions on this matter to help my understanding.

What determines whether the NL VAT must be charged?  Is it that the receipient is registered for NL VAT and essentially creates a sort of self-supply?  How would this differ if the supply was from a 'completely non-registered VAT' person i.e. a consultant who does only 1 small job for the NL company and does little other work?

If the supply in this example was large enough, would the UK consultant have to register for NL VAT?  And how would the expenses incurred in the UK be offset against NL VAT?

Many thanks

Thanks (0)
avatar
25th Sep 2012 11:36

In the majority of Member States there is no VAT registration limit unlike the UK. If you are undertaking an economic activity you are a taxable person. To quote the EU VAT website - 'The concept of a taxable person covers anyone who independently carries out an economic activity, even if that person is not identified for VAT purposes, but it also includes a non-taxable legal person identified for VAT purposes'.

To answer your question if the recipient of the supply of services  carries out an ecomomic activity the place of supply becomes the place where they have established their business (NL). As the place of supply is the Netherlands, to avoid the supplier having to register there, the customer accounts for VAT as if he had supplied himself with the service (accounting for Output VAT) and recovers that VAT to the extent his taxable status allows.place where they have established their business (NL)pl 

If the supply of the service was to a private individual in the Netherlands and the supplier was registered for UK VAT, the place of supply would be the UK and UK VAT will be chargeable.

If the supply was from an unregistered business in the UK to a VAT registered business in the NL the Dutch customer will still account for a reverse charge as the place of supply will be the Netherlands.

With a supply of services, with limited exceptions (land related services), there will never be a requirement for the UK supplier to register for Dutch VAT,

Thanks (0)
avatar
26th Sep 2012 09:58

Out of scope

Somewhere above in the threads, the words "out of scope" were mentioned.  

It took us quite a lot of effort to find out where we can apply"out of scope" rate, and it is nothing to do with place of supply or type of goods.  It is only to do with non-economic activity, eg charity activities.  You cannot assume that, just because an activity takes place outside the physical boundaries of EU VAT, it is "out of scope".

Similarly with "exempt".  This applies, I believe in the UK only, to certain categories of goods and services, such as children's clothes, and bank charges.  Everything else has to have a VAT rate applied to it, whether zero, lower or full.  

The hard bit to get one's mind around, is that even though a transaction, such as the one described above, is technically listed as "full VAT rate" , one must not charge the VAT on the invoice to the foreign EU purchaser of a service, if they are EU VAT registered.

The other important point to remember is to include this type of transaction in the VAT return as an output, and as a supply to the EU, even though it has not had a VAT amount applied to it.

 

Thanks (0)
avatar
26th Sep 2012 13:38

Outside the Scope refers to a supply being Outside the Scope of a specfic VAT regime and is not a 'rate of VAT'.

Exempt is clearly defined in the VAT Directive and applies to all Member States and can either apply where the supply is Exempt with credit or Exempt without credit. Broadly speaking 'Exempt with credit' applies to  transactions are relieved of all VAT in their EU country of origin because they will be taxed in the country of destination. 

'Exempt without credit' applies generally to

 certain activities of general interest (such as hospital and medical care, goods and services linked to welfare and social security work, school and university education and certain cultural services);certain transactions including insurance, the granting of credit, certain banking services, supplies of postage stamps, lotteries and gambling and certain supplies of immovable property 

In the UK children's clothing, certain food, newspapers books etc are Zero rated and not exempt as the Zero rate is a positive rate of VAT.

Thanks (0)