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HMRC believe we should not be charging UK VAT

HMRC believe we should not be charging UK VAT to a UK company if there is no permanent establishment

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A VAT inpector has told us that we should not be charging VAT to a client. The client is a UK incorporated limited company but the director/shareholder (same person) is based in Hong Kong and there is no permanent business establishment in the UK bar a postbox address. They have cited EC law defining the general rules for place of supply of services is contained in article 44 and 45 of the Principal VAT Directive.

The amount is negligable but I would like to know if they are correct or not

Replies (16)

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By David Ex
10th Jun 2021 19:16

Does it make sense to you on your reading of the articles you/they refer to? That’s all you can do. Read the legislation/guidance and match to your client’s circumstances.

Glad I never had to get involved with VAT!

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Psycho
By Wilson Philips
10th Jun 2021 19:29

They may be correct, they might not be. You haven’t told us very much about the nature of the supplies.

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By Paul Crowley
10th Jun 2021 22:29

If it is in writing then difficult for HMRC to defend a change of opinion.
Of late FTT tends to accept even an uncorroborated phone call to HMRC if taxpayer is a charity.

Wait for Jason or Les, they know this sort of stuff.

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By Tax Dragon
11th Jun 2021 05:58

It's almost as if Brexit didn't happen* and VAT Notice 741A didn't exist.

*I know it didn't fully happen for all of the UK, but my comment is in the context of the OP.

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Replying to Tax Dragon:
RLI
By lionofludesch
11th Jun 2021 07:30

Thanks for acknowledging the untenable position of Northern Ireland.

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Jason Croke
By Jason Croke
11th Jun 2021 07:37

Why are HMRC Officers quoting EU articles 44 and 45 of the VAT Directive? We're no longer in the EU, those laws are invalid now, so ask HMRC to quote the correct UK laws if they are going to be pedantic about the rules of establishment.

It is possible that if the Ltd company is nothing but a husk of a shell and all the control and activity takes place in Hong Kong then it is feasible the UK customer is not established here. Equally, I can see from your perspective that you have a contract with a UK Ltd customer and it is unusual for suppliers to look in-depth into the ownership and control aspects of a customer, so I can see why you've charged VAT.

What is it that you are supplying, presumably services which fall under the default rule (ie, not land related, etc). Is the UK Ltd customer VAT registered?

https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a#...

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Replying to Jason Croke:
RLI
By lionofludesch
11th Jun 2021 08:32

Jason Croke wrote:

Why are HMRC Officers quoting EU articles 44 and 45 of the VAT Directive? We're no longer in the EU....

We might have been when these transactions took place.

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Replying to lionofludesch:
Jason Croke
By Jason Croke
11th Jun 2021 08:41

Fair point Lion.

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Replying to lionofludesch:
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By Tax Dragon
11th Jun 2021 09:05

"Be charging" implies a live issue.

If OP meant "have charged"... does HMRC not simply refund historic non-VAT provided doing so doesn't unjustly enrich, which it won't if OP passes onto customer?

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Replying to Jason Croke:
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By Thomas654654
11th Jun 2021 14:27

Thanks for your reply Jason. I did wonder why they were citing EU law when it is no longer applicable which is part of the reason I wanted a fresh perspective. We are providing services (accounting) to the UK limited company which is indeed VAT registered in the UK

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chips_at_mattersey
By Les Howard
11th Jun 2021 11:22

Right answer but wrong reason!
As Jason says, without a UK business establishment, the place of supply becomes where the customer is located, ie: Hong Kong. So outside the scope of UK VAT.

HMRC's reference to the EU PVD is strange. Did they not receive the memo?

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Replying to leshoward:
Psycho
By Wilson Philips
11th Jun 2021 11:52

Again, that involves assumptions about the nature of the supplies, the details of which the OP has so far failed to provide.

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Replying to Wilson Philips:
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By Thomas654654
11th Jun 2021 14:47

Hi Wilson, it's accounting services to the UK company which is VAT registered in the UK. Thank you

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Replying to Thomas654654:
Psycho
By Wilson Philips
11th Jun 2021 15:35

In which case I concur with the VAT experts.

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Replying to Wilson Philips:
My photo
By Matrix
11th Jun 2021 18:39

Who do you mean? HMRC?

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Replying to Matrix:
Psycho
By Wilson Philips
11th Jun 2021 19:12

Well, if you’d seen my previous thoughts about HMRC’s ‘expertise’ re VAT you’d know the answer to that ;-)

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