We are a small non-VAT registered UK company who buys product development service from EU company. The VAT status of EU company is to be confirmed atm (may or may not be registered for domestic VAT, may be not relevant to this query). Q1: Can the EU company put 0% VAT on invoice we pay? Q2: Being non-VAT reg'ed in UK do we have to pay VAT or do anything for HMRC?
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Where a UK business buying in services from outside the UK, the value is added to your taxable turnover for registration purposes.
But, apart from that you need to make no other VAT adjustment.
Thanks for the clarification Les. Just to confirm: we take this purchase into out taxable turnover but the EU supplier can put 0% and we do not have to pay or report any VAT to HMRC, right?
"We are a small non-VAT registered UK company" .... therefore you cannot charge UK VAT on any of your sales - and do not have to make VAT returns to HMRC.
The point that Les is making is that doesn't quite equate to your "(do we have to) do anything for HMRC?" ... in that you have a duty to monitor your relevant turnover and to notify HMRC when you exceed the threshold for VAT registration.
Without knowing anything about the "product development service (that you are buying) from an EU company", it's impossible to say whether "the EU company (can) put 0% VAT on invoice we pay".
Thanks Hugo.
I understand that we have to monitor out turnover to know when we have to be registered for VAT as per the rule of minimum turnover.
Re the services we buy from the EU company - this company provides us electronic product development services i.e. it designs the product, develops and tests some parts on its premises to demonstrate the feasibility of the product and refine it. I simplified it to "product development services".
Correct. No VAT from supplier because to them, the supply is reverse charge/customer accounts for VAT, so they will zero rate it on their VAT return.
At your end, you are not VAT registered, the purchase value counts towards the £85k VAT registration threshold.
Say your normal turnover is £70k over last 12 months and well under the threshold. You contract with an overseas consultant to create a new website or research something and the cost is £18,000. You treat this £18k purchase as a sale - but only for registration threshold calculation purposes - so your turnover for VAT would be £70k + £18k = £88k and you are now over the VAT threshold and need to register for VAT. Your turnover is still only £70k .