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VAT on services provided outside EU

I know I should know this but I've never come across it.  I'm sure that plenty of my esteemed AWeb colleagues will have done though!

UK company (only base is in the UK) supplying services to a Swiss company.  Work carried out in the UK (to be specific -  a recruitment consultant sourcing an employee to work in Switzerland).

What do I do about VAT on my client's invoice?  Or rather, what do they do?  I know what to do if it's a EU supply!

Following this http://www.hmrc.gov.uk/vat/managing/international/exports/services.htm I think it's outside the scope.

Thanks in advance.

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06th Feb 2013 17:54

Outside the scope.

As the supply of services is to a business customer, then the "place of supply" is where the business customer belongs, i.e. Switzerland.  

Recruitment consultancy would, I believe, be an "intellectual service" such that UK VAT does not need to be charged.  As such, the supply of recruitment consultancy services to a business customer based in Switzerland is outside the scope of UK VAT.

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06th Feb 2013 19:29

vat on services outside uk

As the Swiss are not in the EU and the service is for work in that country there is no liability for vat.

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06th Feb 2013 19:40

There is a liability for VAT as it is declarable on the VAT return!!!

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06th Feb 2013 20:39

No, there is not a liability for VAT.

shaun king wrote:

There is a liability for VAT as it is declarable on the VAT return!!!

Taken from: http://www.hmrc.gov.uk/vat/managing/international/exports/services.htm

If the place of supply of your service is not in the EU, then your supply of services is outside the scope of VAT. You don't have to charge EU VAT or include the sale on your VAT Return.

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06th Feb 2013 20:51

Box 6: your total sales excluding VAT

Enter the total figure for your sales (excluding VAT) for the period, that is, the sales on which you charged the VAT you put in Box 1. Additionally, you should also include:

any zero-rated and exempt sales or other supplies you madeany amount you put in Box 8goods or services you have supplied that are subject to the reverse chargegoods or services that you have purchased that are subject to the reverse chargeexports outside the EU

Take off the net amount of any credit notes you issued or debit notes you received.

Don't include:

loans, dividends and gifts of moneyinsurance claims

All services supplied outside the UK are Exempt with credit according to EU law but in the UK we refer to them as Outside the Scope. Services supplied outside the EU are Zero rated so therefore included on a VAT return.

 All services supplied outside the UK All

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06th Feb 2013 21:03

Could you provide a link?

shaun king wrote:

 Services supplied outside the EU are Zero rated so therefore included on a VAT return.

 All services supplied outside the UK All

Could you provide a link to HMRC guidance on this point please Shaun?  The HMRC link I provided clearly states that services supplied outside the EU are outside the scope of UK VAT and do not need to be included on the VAT return.  Your extract from the VAT return notes indeed shows that zero-rated supplies should be included on Box 6 - but it does not explain that services supplied outside the EU (outside the scope of VAT according to HMRC's own guidance) are in fact zero-rated.  A link to HMRC's own guidance on this matter would be appreciated in order to clarify this point.

 

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By BKD
06th Feb 2013 22:20

Shaun is wrong, I'm afraid

Services supplied outside the EU are outside the scope of UK/EU VAT. They are neither exempt nor zero-rated and do not need to be reported on VAT returns.

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06th Feb 2013 22:34

Thank you.

Thanks BKD, exactly as I had thought. 

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07th Feb 2013 09:55

Interesting discussion with HMRC

I am starting to go round in circles myself.  I telephoned HMRC this morning as I was interested in checking to ensure that the out of scope supplies of services should be excluded from the return.  HMRC have confirmed that these supplies should be included in Box 6, and that their own guidance which I referred to above is incorrect.  They have pointed me towards a more detailed version of the Box 6 notes:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por...

Show the total value of all your business sales and other specific outputs but leave out any VAT. Some examples are:

zero-rate, reduced-rate and exempt suppliesfuel scale charges (see Notice 700/64 Motoring expenses)exportssupplies to other EC Member States (that is any figure entered in box 8)supplies of installed or assembled goods in the UK where the overseas supplier registers for VAT heredistance sales to the UK which are above the UK distance selling threshold or, if below the threshold but the overseas supplier opts to register for VAT in the UKreverse charge transactions (see paragraph 4.6 ), andsupplies which are outside the scope of UK VAT as described in Notice 741A Place of supply of services, anddeposits for which an invoice has been issued.

The key point to note here is the one I have underlined above, referring to Notice 741A Place of supply of services.  Supplies of services, which are treated as outside the scope of UK VAT by virtue of the customer belonging outside the EU, need to be included in Box 6.  

There is no VAT "liability" because there is no VAT due on the supply.  Nor is the VAT zero-rated - it is outside the scope of UK VAT.

The lady I spoke to at HMRC has assured me that she will be forwarding the matter to online services, given that the information given on their website regarding NOT reporting out of scope supplies of services on the VAT return is wrong.

Hopefully that clarifies everything!

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By Joo
03rd Mar 2015 13:44

No need to declare in VAT return
Notice 741A Place of supply of services clearly says below. Where the place of supply of services is in a Member State of the European Community (EC), that supply is subject to the VAT rules of that Member State and not those of any other country. If the Member State is not the UK, such supplies are said to be ‘outside the scope’ of UK VAT where the place of supply of services is outside the EC, that supply is made outside the EC and is therefore not liable to VAT in any Member State (although local taxes may apply). Such supplies are said to be ‘outside the scope’ of both UK and EC VAT

 

  'Outside scope of UK VAT' means other EC countries, that supply is subject to the VAT rules. 'Outside scope of both UK and EC VAT' means outside EU, that the supply is not liable to VAT rules. Service provided to Swiss falls into the second category, which is not subject to the VAT and therefore no need to declare in VAT return. HMRC only asks to include 'supplies which are outside the scope of UK VAT as described in Notice 741A Place of supply of services' in BOX 6.

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06th Jun 2016 12:44

That too was my conclusion on this matter until finding the following link that has guidance on working out the place of supply which was published 01 July 2014...

https://www.gov.uk/guidance/vat-how-to-work-out-your-place-of-supply-of-...

The last paragraph under the second section headed "Which country’s VAT rules to use when charging VAT on services" It states "If the place of supply of your service is not in the EU you don’t have to charge EU VAT but you should include the sale in box 6 on your VAT Return"

I also had it confirmed with out vat specialist helpline that these sales should be included in box 6, my understanding on this now is that both of the examples in Notice 741A Place of supply of services are 'Outside the scope of UK Vat' and the only difference is that services supplied outside of the EC is ALSO 'Outside the scope of EU Vat'.

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07th Feb 2013 11:38

BKD - I did not say Exempt. I

BKD - I did not say Exempt. I saif they are Exempt  with credit which is something totally different. If you talk to any EU tax authority they do not understand the notion Zero rated as the VAT Directive talks of Exempt with a right to deduct. Take a look at Directive 2006/112/EC and start at Article 138 on goods and see that the Directive refers to Exemptions and not Zero rating - Zero rating is peculiar to the UK!!

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News to me

and many others I imagine!  Of course no actual VAT is impacted, so prtobably not a massive issue but HMRC's position is interesting in that they are effectively saying that supplies that do not take place in the UK are reported on a UK VAT return.  That feels wrong to me.

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By BKD
07th Feb 2013 12:20

Zero rating may well be peculiar to the UK, but as we are talking about a UK business and UK VAT I would have thought it perfectly in order to discuss zero rating in the context of this dicussion. In any event, regardless of the distinction between "zero rating" and "exempt with credit", the fact is that supplies of services outside the EU are outside the scope of UK/EU VAT. They are not zero-rated, which is the part that I was referring to when I said you were wrong.

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By Sarah P
07th Feb 2013 17:42

Wow
Thank you so much for all the very useful input.

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07th Feb 2013 19:38

HMRC say a box 6 entry is required
Whilst Shaun's original heading 'there is a liability' is maybe slightly misleading, my understanding is he is correct in what he is saying.

Sales outside of the EU should be recorded in box 6, as this relates to total sales.

This is how I have always prepared returns and this was 'confirmed'as the correct treatment by 3 inspections (on different clients) in the last 12 months.

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07th Feb 2013 20:10

Following my conversation with HMRC this morning, I agree with zeofiles that sales outside of the EU should be recorded in box 6.  I am in agreement with Shaun's earlier comment that these sales should be included in box 6, and now have confirmation from HMRC to confirm this.  I will be interested to see if HMRC do amend their website guidance on supplies of services outside the EU, as this currently states that such sales should not be reported, and it was this guidance which caused me to doubt Shaun's earlier comment.

I still disagree with Shaun's suggestion that supplies of services outside the EU are zero-rated. Even if it is possible to argue this from some sort of EU law point of view, it is thoroughly confusing from a UK VAT perspective to refer to out of scope supplies as zero rated.  Such supplies are not zero rated for the purposes of UK VAT and surely should not be referred to as such.

In particular, muddling up the references "zero rated" / "outside the scope" could be very confusing to someone on the flat rate scheme, who is required to include zero rated supplies in their flat rate turnover.  Out of scope supplies are not required to be included in the flat rate turnover.  This obviously makes a difference to the potential VAT liability!

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By BKD
07th Feb 2013 20:25

Quite so, sparkler

From a UK VAT perspective - which is what the majority of of AW members' clients will be interested in (I guess) - zero-rated sales are zero-rated, exempt are exempt and outside the scope are outside the scope. There is no need to try and confuse matters by trying to label UK supplies with EU definitions.

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By DMGbus
07th Feb 2013 22:21

Terminology / FRS

"Outside the scope" is important terminology in the context of the Flat Rate Scheme.

 

Calling "Outside the scope" supplies "Exempt" or Zero Rate" is damaging in the context of the Flat Rate Scheme.

 

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By DMGbus
07th Feb 2013 22:24

Zero rating is not unique to UK

I see that zero-rating is referred to by the tax authorities in Eire, so this can NOT be unique to the UK.

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09th Feb 2013 12:04

ooops clearly I should have excepted Ireland but never mind another 25 countries for you still to research!!

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By Tony M
26th Aug 2013 19:14

VAT threshold

I understand all the comments regarding charging VAT to a Swiss client or not.

My question is this. 

I have been asked to work in Switzerland repairing some aircraft and would invoice the Swiss company

Does the income from this activity count as turnover with regards the VAT threshold. So should it be added to UK income or ignored. I am currently below the threshold but this would take me over the threshold if it is included.

 

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17th Sep 2013 11:35

VAT on services supplied outside UK

I agree with the posts, suggesting that although no UK VAT is chargeable (outside the scope), the net sales value does still need to be included in box 6 - seems a crazy rule as the sales and VAT no longer correlate, but there we are!

The legislation is not always clear, and is very confusing when a business has a one off event:

I have been trawling the legislation to confirm that consultancy work carried out in Turkey, and therefore non EU (by a UK VAT registered business) but invoiced to a UK registered arm of the client's business, remains subject to UK VAT at the standard rate. Client still believes that as the work is actually delivered in Turkey it should be outside the scope.

Comments would be welcome

 

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By Bunny
28th Mar 2014 10:37

What about services that have no clear place of supply

This thread was helpful in some respects, but I have a slightly different issue...

I have a client I'm doing some web design for (service) who conducts business in both the UK and in New Zealand, by virtue of where the hardware for their online company resides.  The client company itself has a registered address in New Zealand, but the server I am installing the website on for them is physically located in the UK.  I don't have to physically visit the server to do the work though, I login remotely.  The server could be in China for all I care, it makes no difference.  The client make sales globally, via their online store, but they are not VAT registered, they are New Zealand GST registered (same system, different name).

Likewise, I have another client who came to the UK from New Zealand and I did some consulting work for him while he was here.  By that I mean, he popped over to my house and we sat down and looked over a proposal he had.  I wrote up my thoughts on it and sent it back to him via email along with the invoice for my time, by that time he was back in New Zealand.

So in either of these situations, where is the place of supply?  The UK or New Zealand?

I get a lot of these situations where, the client is buying my time.  The work I do for them is from my office in the UK, so I've always assumed I should charge VAT and have done so, but this thread makes me think I might have been doing it incorrectly.

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16th Jan 2015 17:00

Recharging expenses to US customers whilst in the UK

I have a client who provides consultancy services to a US company, but a couple of times a year the US customers come to the UK and my client drives them around (and recharges them his mileage), they pay for their own hotel accomodation but my client recharges them his own hotel accomodation and parking, my client rented a business centre to host meetings between the US customers and UK prospects (and he recharged the US company this room hire and associated catering).

I would like to know, please, what the VAT position is for my client when he recharges the US customers his own hotel fee, the mileage in his own car for running them around, car parking, the room hire and the catering.

Clearly if the US customers were paying the hotel bill, taxi's, room hire and catering directly they would be charged VAT.

There is also an overall "consultancy fee" for arranging this trip and his time with them which I am fairly clear is outside the scope.

Colleagues of his who do something similar apparently put the whole lot down as "consultancy" and charge no VAT.

Many thanks.

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