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VAT return - Purchase invoices for services from outside the EU

Hi all,

I have a small social media company which is VAT registered. A lot of the work I contract out to workers in the Philippines. The work they do relates to COGS. Each month they invoice me for their work done. So basically I get invoices from the contractors for the service they have done which goes to my cogs.

My question is this: Do these foreign purchases invoices need to be shown anywhere on the VAT return or are they simply outside the scope of VAT and therefore do not need to be included anywhere on the return. Looking on the HMRC website it states: "Goods and services that are outside the scope of UK VAT includes anything you: buy or sell outside the European Union (EU)."

Please could somebody confirm that I am correct to leave these purchases completely off the VAT return?

Thanks!

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Reverse charge

The answer is that the services are reverse chargeable.  This means that the sterling equivalent of the purchase is multiplied by 20%.  This VAT is then included in Box 1 and Box 4 (assuming all VAT can be recovered - no partial exemption).

The reasoning is that if there was no VAT adjustment, partially exempt businesses such as banks would simply avoid VAT by buying all their services overseas (oh yes they would!).  So these companies would have to pay VAT on the services and would not be able to reclaim it.

But for a fully-taxable company, this has no overall impact.

Hope this helps.

Thanks (2)
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11th Jan 2013 09:06

Thanks for the reply VAT Doctor - it helps a lot.

I had a feeling that the services might be reverse chargeable as I can see this mentioned on the HMRC website.

However looking at the HMRC website it states "Goods and services that are outside the scope of UK VAT includes anything you: buy or sell outside the European Union (EU).

I found this information a bit contradictory.

For what reason would you not be able to recover the VAT? Would it only be for companies such as banks?

 

Thanks (1)

partial exemption

Hi there

It is down to whether you make any supplies that are VAT exempt.  With VAT exemption comes an inability to claim related purchase VAT.  For a media company, I imagine there would be no exempt supplies.

Regards

Thanks (1)
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11th Jan 2013 10:39

that helps a lot - thank you very much :)

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By gome777
29th Dec 2014 14:04

So what your saying The VAT Doctor is that he has to still pay VAT on the service directly to HMRC? If so, If I was buying goods from a supplier of electronics in Asia/USA & they were invoicing my company for sourcing/handling as a separate service along with the invoice of goods, would I have to pay VAT (reverse charge) on the services also?

Thanks.

P.S what about places like Hong Kong where certain services are not taxed, are we still due to pay VAT on them here as a business?

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