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Can I be forced to zero rate services to the EU?

If my UK VAT registered company supplies services to a VAT registered EU company can I charge VAT?

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My UK company is VAT registered and also on the flat rate scheme.

Well over a year ago I invoiced an EU company for services and added VAT. At the time zero rating was discussed but I was not prepared for that (being on the flat rate scheme) and they concluded in writing they would accept the invoice with VAT. Everything was duly paid.

Now they are asking me to issue credit notes to cancel the invoices, issue new invoices without VAT and transfer the VAT directly back to their bank account. (A genuine request I believe!)

Assuming I could have zero-rated the invoice (debatable perhaps for other reasons), did I do anything wrong by adding, with agreement, the VAT?

Unless it was actually wrong or illegal for me to invoice for the VAT I don't see why I would be obliged to refund it now, especially as its a true expense I cannot reclaim. Is there any legal reference perhaps, stating that it's not illegal to charge VAT when it could/should be zero rated?

Furthermore can they reclaim the VAT somehow? Naturally their VAT rate is much lower so they would have to reclaim from HMRC for this to be effective.

Replies (22)

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RLI
By lionofludesch
05th Oct 2020 23:14

You can't pick and choose your rates.

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By Wanderer
06th Oct 2020 01:23

Paul_Michael wrote:
Can I be forced to zero rate services to the EU?
If my UK VAT registered company supplies services to a VAT registered EU company can I charge VAT?

My UK company is VAT registered and also on the flat rate scheme.

Well over a year ago I invoiced an EU company for services and added VAT. At the time zero rating was discussed but I was not prepared for that (being on the flat rate scheme) and they concluded in writing they would accept the invoice with VAT. Everything was duly paid.

Now they are asking me to issue credit notes to cancel the invoices, issue new invoices without VAT and transfer the VAT directly back to their bank account. (A genuine request I believe!)

Assuming I could have zero-rated the invoice (debatable perhaps for other reasons), did I do anything wrong by adding, with agreement, the VAT?

Unless it was actually wrong or illegal for me to invoice for the VAT I don't see why I would be obliged to refund it now, especially as its a true expense I cannot reclaim. Is there any legal reference perhaps, stating that it's not illegal to charge VAT when it could/should be zero rated?

Furthermore can they reclaim the VAT somehow? Naturally their VAT rate is much lower so they would have to reclaim from HMRC for this to be effective.

Brilliant!
Just wrong on so many levels.
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By SXGuy
06th Oct 2020 06:31

You have a lot of misunderstandings to which you talk as if you know what you are talking about.

You haven't once mentioned if this was a b2b or b2c invoice

You assume the EU country reclaimed vat from hmrc.

And you assume any repayment of vat can't be recouped some how on your end.

Its clear you do not understand vat rules, please see an accountant for advice.

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Replying to SXGuy:
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By Paul_Michael
06th Oct 2020 11:28

It's b2b and they have not reclaimed the VAT from HMRC.

The reason I don't think it can be recouped at my end is that under the flat rate scheme I have to pay VAT based on my turnover which won't change that much if I do not charge VAT.

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My photo
By Matrix
06th Oct 2020 06:51

Did they provide their VAT number? If so then you shouldn’t have charged VAT and should refund.

Your terminology is all wrong too.

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Replying to Matrix:
Psycho
By Wilson Philips
06th Oct 2020 11:19

No need for a VAT number. Just evidence that the customer is a business person.

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Replying to Wilson Philips:
My photo
By Matrix
06th Oct 2020 11:41

I didn’t say it was necessary but the fact the OP didn’t have the VAT number at the time of invoicing was missing information. We don’t know if other proof was provided.

Regardless, I don’t think he knew what he was doing anyway.

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Replying to Matrix:
Psycho
By Wilson Philips
06th Oct 2020 11:57

Agreed - but some, OP in particular, might have interpreted your comment differently. I wasn’t correcting you, just expanding. (Although some might have interpreted my comment differently ;-) )

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Replying to Matrix:
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By Paul_Michael
06th Oct 2020 11:22

They did not supply a VAT number at the time. They have now sent a VAT number with the request to re-invoice.

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Replying to Paul_Michael:
Psycho
By Wilson Philips
06th Oct 2020 11:36

As noted above, a VAT number is not needed.

As noted below, supplies of such services are not included in your FRS turnover.

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VAT Director
By Jason Croke
06th Oct 2020 08:28

Services supplied by UK supplier to an EU business (B2B) is not a zero rated supply, it is outside the scope of VAT. Two very different things in VAT terminology and perhaps where this transaction went wrong initially.

For Flat Rate purposes, outside the scope is not included when calculating output tax. See para 6.4 https://www.gov.uk/government/publications/vat-notice-733-flat-rate-sche...

It appears you've charged an EU business VAT when the regulations indicate you do not charge VAT, so not a matter of being forced to charge VAT against your will, its the law.

The EU customer is therefore asking to be refunded the VAT they were overcharged (which they are unlikely to be able to reclaim from the UK under 8th Directive rules as VAT is only refunded when correctly charged in the first place). I see no reason why you cannot correct the error and refund them the VAT - credit note reduces your next VAT return output tax so you effectively get the VAT back from HMRC and so not out of pocket.

As you are on the flat rate scheme, can you also check that you do not fall foul of the limited cost trader rules (same link as above, section 4).

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Replying to Jason Croke:
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By Paul_Michael
06th Oct 2020 12:03

Thanks, this seems like excellent advice! I had perhaps read and remembered the part about goods and the subsequent statement that the "Flat rate scheme puts you at a disadvantage compared to your competitors".

I am still curious though as businesses must buy goods and services all the time from other EU countries without giving VAT details, paying VAT where perhaps they did not need to. Are all EU suppliers therefore open to having to recalculate everything, on request, even 15 months later? Say for example my company just orders a printer from France without giving any VAT number.... it seems unlikely I could go back to them later or that the seller acted improperly. Just interested here...

Also, as a slight complication, the EU company was hiring me to do work for one of their UK customers. This is another reason I thought VAT might be appropriate. As mentioned above I do admit that I don't know much about VAT - I do want to learn though. Perhaps the logic is that the service was delivered to the company paying for it who then technically delivered it back to the UK?

Thanks again for your comments :-)

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Replying to Paul_Michael:
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By Cheshire
06th Oct 2020 12:16

Paul_Michael wrote:

I am still curious though as businesses must buy goods and services all the time from other EU countries without giving VAT details, paying VAT where perhaps they did not need to.

You are making a huge assumption that other businesses have no clue. every one of my clients know exactly what is expected of them and what they need to do in such cicrumstances, they are all encouraged to contact me if they have no clue BEFORE they enter into contracts.

I would suggest, from the number of non professionals who wander into this site, that its just those people who for some reason think they know enough to go it alone who fudge it up. who then end up creating a pile more work for themselves +/or end up with fines and penalties.

If you really want to learn, get some proper training. Its a massive subject.

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By Paul Crowley
06th Oct 2020 12:21

Best advice is get an accountant.
He will fix it for you

Edit

EVERY reply just makes it more clear that OP is way out of his depth

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By sculptureofman
06th Oct 2020 11:21

"Unless it was actually wrong or illegal for me to invoice for the VAT I don't see why I would be obliged to refund it now"

It absolutely was.

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JCACE
By jcace
06th Oct 2020 20:03

You should of course first make sure that the services should indeed be taxable where the customer is located, rather than falling into one of the few exceptions (land related, transport, where performed etc).

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Replying to jcace:
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By Paul_Michael
07th Oct 2020 00:03

Thanks, yes I will look into this. My contract was with an EU based entity, to perform work in their UK office. I don't know the legal status of that office. The final work product was for a UK customer of the EU company. That UK customer is of course not my customer, it just indicates my customer's purpose. Don't know yet if any of this matters, will indeed hire someone if it's not clear as others have suggested :-)

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Replying to Paul_Michael:
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By Wanderer
07th Oct 2020 06:35

Paul_Michael wrote:

My contract was with an EU based entity, to perform work in their UK office. I don't know the legal status of that office.

You are slowly revealing extra facts which could have a MAJOR bearing on the considerations in this case. As Paul Crowley says above "EVERY reply just makes it more clear that OP is way out of his depth". You'll be telling us one of the parties is a bank, insurance company, property or other partially exempt business next which has a further bearing on the players involved.
From this thread and your previous:-
https://www.accountingweb.co.uk/any-answers/unused-property-losses-vs-un...
you are clearly a DIYer who is trying to go it alone and doesn't want to pay for proper advice. Even though you have a business which is VAT registered and property investments.
You also seem to think that you can make up the rules or dispute them based on what you think is 'fair'.
If you are DIYing all this, on the balance of probabilities you WILL have other issues with your company accounts, Corporation Tax and Self Assessment. Probably PAYE issues and other VAT issues as well.
Chance of the Flat Rate Scheme being advantageous to you is probably quite small and could easily be costing you money.

Now stop all this and engage an accountant who can properly advise.

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Replying to Wanderer:
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By Paul_Michael
07th Oct 2020 10:03

Yes you are right and I think I just mentioned I was going to do that. I don't think it's that unusual for people to do or try to do various financial tasks themselves. I don't believe it's wrong to do that, it does indeed carry some risks as you say. Not that is relevant to the question but I have engaged accountants and legal advisors multiple times over the past twenty years in business. I've always done some research first though. I was not attempting to present a full picture of the situation as I don't expect people here to act as my advisors. Of course they will not and would not have any responsibility for any advice given either. I was just asking about one aspect of the problem and I have found that it is indeed more complicated than I thought. I do take a genuine interest in these things and in the case of the previous question I asked then the references given were very insightful indeed and highly appreciated. Likewise this discussion has been extremely helpful, but as you say, it's ultimately fairly complex and I will be paying for advice. I'm not in any way attempting to make up rules. Furthermore fairness is pretty well irrelevant when it comes to what the rules actually are and can only really be an initial guide as to what the rules might be. Your advice, even where critical, is anyway appreciated.

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By Rgab1947
12th Oct 2020 09:39

You charge VAT at 0% ECS or ECG. Only if you have their VAT number.

You have no discretion to change the rules.

Your customer probably had a VAT audit or their YE accountant found out and insisted (correctly so IMHO) to change it.

Tough you cannot reclaim. Don't select the FRS then. You cant select which VAT rules you apply as its suits you. That is referred to as fraud. Your accountant would have to do a SARS so dont put him in that position.

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Replying to Rgab1947:
Psycho
By Wilson Philips
12th Oct 2020 11:25

That is wrong, for reasons stated above.

For goods, then yes a VAT number is required for Z/R goods.

For relevant services, though, no VAT number is required and the supply is outside the scope.

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By Echo761
12th Oct 2020 09:51

This question and the replies clearly highlight the dangers of this forum. It is clear that if the full details are not provided then the answer will usually be wrong - or just fit the details provided... not necessarily the facts.

As soon as you are aware you are out of your depth, take advice. It would appear that some people don't realise they are out of their depth... even when their head goes under the water and doesn't re-appear.

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