VAT and international services: All change on 1 January 2010

Hi,

What happens on services provided to UK and EU companies from non-EU countries??

For example, if a UK company buys computer processing services from India there was no VAT. However, does the place of supply now become the UK? Should the UK company apply the reverse charge to account for the VAT.

If the UK company is below the VAT registration threshold, could adding in reverse charge services take it over the registration threshold.

If I am VAT exempt, what would I do?

How about a business running CPE seminars and courses?

The customers of one of my clients are usually from overseas banks or fund managers coming to the UK for a course.

Or UK hotel costs for an employee of a Paris based bank?

Thanks,

Greg

My understanding is that the same reverse charge entries are required in order to ensure that non-EC suppliers do not have an advantage over EC suppliers.

I believe the reverse charge entries could take you over the registration threshold.

If you are fully exempt why would you be completing a VAT return?

From my understanding of the changes there will no longer be a need to reclaim the sales tax paid from a foreign govenment Which can only be a good thing as they do take a while to refund.

We supply specialist camera systems to one of our clients in the Netherlands (NL) and an the supply of equipment we do not charge VAT as they are VAT(BTW) registered in NL. To help install the equipment we contract a company there to help us and they are also BTW registered and as the place of supply of the installation and servicing is NL then they charge us BTW at 19% which we then have to reclaim from the NL tax authorities which can be time consuming (upto 6 months) and a bit of a cash flow drain.

So once the changes come into play we will be able to account for the VAT with a reverse charge at the UK rate.

Or have I got the wrong end of the stick.

Peter

MD

 Outersight.co.uk

The Dutch company is currently charging you Dutch VAT as the work is carried out in Holland. After 1 January it is the place of the customer not the place of supply that determines the rule. So the Dutch company charges you zero-rate VAT and you will put through a reverse charge at the UK standard rate of 17,5%

Re. example 1 , is the French business customer registered for VAT in France ? If so then it is a B2B transaction so the transaction is zero-rated from the UK. If the customer is not VAT registered then it is a B2C transaction and you charge UK standard rate VAT at 17.5% after 1 January.

It is also the case that foreign EU authorities will no longer accept paper-based claims from January 1st.

This means no more claims should be posted much after the middle of December. Say in 6 weeks.

Afterwards all claims must be made through a wonderful new computer which is being set up by our government.

Have you had any indication when this will be up and running?

PR

I assume from 1 January. You will file the claims through an HMRC portal and they will liaise with the relevant VAT authority in other EU states. This will be easier than downloading reclaim forms from the foreign VAT authority's website and then having to find a translator, unless you have been dealing with Belgium and Holland where you can file in English.

How would the sales to non-EU customer be affected if the customer holds a UK VAT registration, is the place of supply simply then be the UK and so Vatable?

Is there a minimum amount below which you won't have to report services on the EC sales list ? There is a de minimis limit for goods but I can't find one for services. I have scoured the HMRC website on this issue but cannot find this mentioned. You will have to report intra-EU services however small ?

Some excellent points have been raised following my article - here's a few comments:

* the place of supply for the computer processing services will be where the customer is based ie UK in the first reply below and subject to the reverse charge. If the UK customer is not VAT registered because it only or mainly has exempt sales, then the overseas services it receives will form part of its taxable sales. It will need to register for VAT if the value of these services (and other taxable income - coffee machine sales?)  exceeds the VAT registration limit (£68,000 etc.)

* CPE seminars and courses - the place of supply for training (educational) services is where the course is held. So a German business delegate attending a tax update course in the UK will be charged UK VAT before and after 1 January 2010. There will continue to be scope in many cases for the German delegate to reclaim this VAT form HMRC through the overseas VAT repayment system. However, watch out for changes on 1 January 2011 to the place of supply rules for these 'where performed' services.

* Overseas business delegates will continue to pay UK VAT if they stay in a UK hotel. The place of supply for land based services (and a hotel is land) will continue to be where the land is based.

* Peter with the Dutch clients gives an excellent example of how the new rules will simplify the current procedures

* Be aware that it is still possible for a sale to be B2B without the customer being VAT registered. A VAT number is the best evidence of a customer being 'in business' but it is not a requirement. In the HMRC guidance, they refer to alternative evidence such as membership of business organisations such as Chamber of Commerce (seems a strange one) and paperwork from fiscal authorities. However, under the new rules, a business not VAT registered soon will be if it is receiving services from overseas suppliers because it will (as explained above) need to include the services as part of its turnover for registration purposes.

* Final point - if an EU business customer is not VAT registered for some reason, then no entry will be made on the new EC sales list.

Neil Warren (VAT lecturer, author and consultant)

1) Under the old rules the place of supply of a software licence is the customer's location, that is, the UK in this case. And the intermediary's supply is located where the underlying service is located, i.e. the UK. Is my understanding of the old rules correct?

2) Under the new rules, you just look at the location of the intermediary's customer, i.e. the USA.

Did I get 2 out of 2 right? Or am I totally confused?!!

Thank you.

Just when I thought I understood it - they go and change it and now I'm not sure I understood it in the first place.  Help!!  Let me see if I've got this right...

Many companies provide consultancy or training services to overseas clients.  In these cases, the 'place of supply' rules apply.  So for the EU, the supplier is responsible for VAT and, as long as they don't need to register for VAT in the country where the services are delivered, no VAT needs to be charged.  After the 1st January , the change is that the 'place of supply' will now be where the customer is - not where the services were delivered.   So, in most cases this won't make any difference - except that the supplier will need to fill out the EC Sales List (which they didn't before because they weren't supplying 'goods') - Is that correct??

Now the more complicated case.  Many UK companies operate as sub-contractors (associates) to UK companies supplying the services overseas.  So now the consultancy or training is delivered overseas but, for the sub-contractor who delivers the service, the customer is in the UK.  As I understand it, under the current rules the 'place of supply' rule applies and no VAT need be charged by the sub-contractor (although many do!) - But, under the new rules the 'place of supply' becomes where the customer is and VAT will need to be charged.  However, in this case no EC Sales List - obviously.

If I have this wrong, I would be grateful if someone would correct me -  I'm going to lie down now in a darkened room... 

Current rule on face to face training : Where you are standing when you deliver. Generally reverse charge for EU courses, irrespective of where the customer is. EG I do a course in Jersey, invoice UK firm of accountants no VAT because none in Jersey.

This rule won't change in 2010 - it changes in 2011, so no changes for trainers wherever their customer is - it is only based on delivery of the training. From 2011...well lets worry about that a bit nearer the time.

Current rule on consultancy (not live training face to face) : covered by the Schedule 5 rules so reverse charge applies. So no UK VAT if your customer is a business elsewhere in the EU.

There is also no change to this rule because this is the default rule in 2010 anyway.

Yes, EC sales lists will be required for both of these clients as they will be required for services as well as goods in 2010. Quarterly for services; deadline 2 weeks for paper and three weeks for online. See my art6icle linked at the foot of Neil's.

Keep Calm and Carry On (saw this yesterday on a postcard and it sums up this lot brilliantly)

And if the customer's VAT reg number is not updated in customer master records then you cannot report these transactions on the EC sales list as you have to report by customer VAT number. So it means ensuring that master records are updated with the VAT reg if we know that the EU customer has one.

If the EU customer is not VAT registered then we charge him standard rate VAT, as before ?

Do the new rules affect the flat rate scheme?

According to Neil Warren's artciles earlier this year currently, where no VAT needs to be charged, sales of goods to EC customers are zero rated and therefore included in the FRS turnover whereas sales of services to EC customers are outside the scope and therefore excluded from the FRS turnover.

Will this remain the same under the new rules?

Hello Chris - this is correct - there is no change to the flat rate scheme with the new rules.

As a general principle, exempt, zero-rated, standard rated and reduced rated business income is included in the flat rate scheme - income that is outside the scope of VAT (i.e. where place of supply is outside UK) is excluded.

Neil Warren - VAT consultant, lecturer, author.

As I understand it, while the scope of EC VAT is changing the method of calculating your liability is not. Am I right?

Our business has a situation where we sell software licences, maintenenance and installation/training services to a US reseller, whose customer is based in an EU country. One of our employees delivers the installation and training in that EU country.

My question is how should we be charging/accounting for VAT on the sale of non-physical goods (software & maintenance delivered electronically) and the physical training, where our B2B counterparty is located in the USA, but the ultimate place of supply is in the EU? And would we need to complete EC sales lists for such transactions?

Many thanks