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Vat Query

Have just taken on a new Ltd company client. Not Vat registered. Provides consultancy services and have issued only two invoices. A £300k invoice to a business client in Spain last year and a £100k invoice to another client in Spain this year. He was advised at the time no vat registration is applicable and accordingly no vat has been charged.

Vat is not my area of speciality and with the relatively large amounts involved I need to double check all is o.K. I think I am correct in that this is outside the scope of vat as the place of supply is in Spain and is a B2B supplies. Am I correct in that the only issue is that the client needs to ensure that this is a genuine B2B supply (Per notice Vat 741A- place of supply of services point 2.7) and obtain the formal evidence for this?

Does he need to register in Spain and account for Vat.?

Thanks in advance

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16th May 2012 14:01

EU sales - registration for VAT

If the place of supply rules mean that the supply is in Spain, in principle there will be a liability to register there. (He may also seek to be registered in the UK, so that he can recover input tax incurred here.

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16th May 2012 14:13

Not established in Spain

I had a similar query recently and found this, which might help.

 

http://ec.europa.eu/taxation_customs/resources/documents/vat_ec_es_en.pdf 

 

"A foreign trader not established in the territory subject to Spanish VAT and who carries

out transactions in that territory does not have to register for VAT, as he is not subject to

that tax, if the recipient of the goods or services in respect of which tax is payable is a

trader or a professional."

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16th May 2012 14:49

Thanks for your comments. I am getting more confused.
My findings indicate- outside the scopy of vat in UK and to confirm the Spanish client is a genuine business. ie B2B. More importantly the spanish client needs to reverse charge and account for Vat in spain ( net zero cost to client).

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16th May 2012 14:57

However ...

 ... the ECJ decision of Schmelz has raised the question as to whether there remains a liability to register in the MS where supplies are made. It has certainly changed the rules in the UK; has the EU link from JazzySasha been updated to reflect that case?

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16th May 2012 16:05

Article 44 of the VAT Directive clearly states

'The place of supply of services to a taxable person acting as such shall be the place where that person has established his business' .

This is known as the general or default rule and this can be over ridden in certain circumstances.

On the basis of the information given in your query the Place of Supply will be Spain and will be accountable by the customer under the reverse charge provisions subject to getting his VAT number etc.

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16th May 2012 18:13

Shaun. Stll confused.

Thanks for your reply. What due you mean 'subject to getting his Vat numbers'?

The UK client is not VAT registered as already established. Should they have mentioned in the original £300k invoice that 'reverse  charge applies' ie so that the Spanish client account for it?

Is it as simple as this or are you saying the UK Client needs to register for vat in order to be able to mention  reverse charge on the invoice?

 Thanks

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By Hansa
16th May 2012 20:14

Yes, and its going to get worse!

I read with interest the comments above and in particular LesHoward's contribution. - See the link http://www.ion.icaew.com/TaxFaculty/23277.

My answer to the OP is that yes, his client probably will need a UK registration no., not only to reclaim input VAT, but, practically, to allow registration in Spain (notwithstanding the Schmelz case which was very odd both in the circumstances and the decision).  as in most of continental Europe a turnover of £400k within the EU would absolutely require registration and the Spanish authorities will not understand the absence of a UK number.

However the OP should be aware of the quite considerable costs his client will incur (fiscal agent, local accounting etc all subject to minimum fees).

On a more general note, the Schmelz decision, if enacted into UK tax law will effectively put a full stop on small scale trading between the UK and the rest of the EU.  (I can almost guarantee (famous last words!)  no other EU country will enact such regulations).  The ICAEW brief gives the example of a small-scale window cleaner in Eire popping in to Ulster to do some extra windows (in reality, cash, surely) but this is almost as unrealistic as the Schmelz case (German, sole business activity being a flat letting in Austria, not being permitted to utilise the (very small) registration threshold in Austria).

Think of someone selling low volume "ebooks" on line.  As things stand, he can VAT register in the UK (if over £73k) turnover and sell, say, £15k to 5 different EU countries and £5k in 10 more without further bureaucracy.  Under the new proposals (if reciprocated) he would have to register for VAT in 15 other countries ... A Kafkaesque nonsense in my humble opine!  Especially as he could register his e-business in (say) HK or Singapore and put 2 fingers up to the EU VAT authorities who would, between them, get zero ... oh, and no corporation tax either! 

Utter madness. 

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18th May 2012 12:59

I am as confused as the OP

I don't understand Hansa's second paragraph "... probably will need a UK registration no., not only to reclaim input VAT, but, practically, to allow registration in Spain."  Quite apart from any changes that may be implemented in future, are you saying that the current position is:

there is no strict requirement to register for VAT in the UK, because the place of supply is in Spainthere is no requirement to register for VAT in Spain because it is the customer who must self-assess Spanish VAT under the reverse charge rulesregistration for VAT in the UK would avoid any question of having to register in Spainregistration for VAT in the UK is required in order to register for VAT in Spain

I have a fairly similar case to the OP.  A new client has provided approx. £200K of labour in its first year, of which only about £10K is invoiced to a UK company, with the rest being invoiced to a Portuguese company.  The client has not registered for VAT.  I have told them that they should, if only to recover a bit of input VAT, but I am unclear on whether they should have registered on reaching £73,000 (now £77,000) of total supplies which would have been taxable if they had been supplied in the UK (or am I confusing this with the rule about being able to recover input tax on outside the scope supplies?).

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18th May 2012 14:07

Also confused

Hansa's comments don't seem to differentiate B2B supplies from B2C supplies.  In the situation of the OP, it seems to me that B2B supplies would not require a VAT registration in either the UK or Spain.  The services would be subject to reverse charge in Spain.  After all, that is the point of the reverse charge provisions, is it not?

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By Hansa
18th May 2012 16:36

Whoops

Thisistibi & Euan MacLennan have both looked at this from the UK viewpoint only.  VAT is not applied in the same way throughout Europe, and registration requirements are very different.  

Just try doing any kind of business in Germany or Austria for example without a UK VAT no. and you'll be shown the door (You cannot even open a business bank account without a VAT number).  In Slovakia the registration threshold is €50k+ but any business however small requires a registration number by law.  

I was therefore trying to say (on a practical rather than legal level) that the Spanish customer of the OP's client might experience  difficulty in applying reverse charge in respect of an invoice from the UK where no VAT number is provided, as the UK invoice might be deemed a fake if no VAT no. is shown.

However I incorrectly added "...but, practically, to allow registration in Spain "  which of course is complete nonsense unless and until the Schmelz case decision is adopted into law.  My apologies.

 

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