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Outsourcing a service to Rep of Ireland

What are the implications for my client if he outsources part of his service to a company in Ireland

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My client is in the fullfillment businiess sector, so on behalf of his clients (some of which are in the UK, but some are outside the UK)  he houses their stock in his warehouse (in the UK), when they receive an order they tell him and he picks it and posts it out to whoever ordered it. He can sends packages all over the world.

Now he is looking at outsourcing the above for some clients to a company based in Ireland. However, he's talking about now having to create his own sales invoices in Euros for the clients he's using the outsourcing operations for and having to set up a bank account in Ireland? I can't see why, but he says this is what Amazon would do?

From my perspective, he would invoice his clients the same as he is doing now, ie from the UK? The VAT issues (for him) would remain unchanged and the fact that he has outsourced some of his own work to Ireland is irrelavent.

 

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By zebaa
02nd Apr 2021 13:52

He might be better off as regards vat if he can get an Irish vat number. There are hurdles to cross going that route though. I suggest you consider the wider picture rather than the narrow question asked.

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Replying to zebaa:
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By Alex999
02nd Apr 2021 15:07

Yes I have purposely ignored VAT in my original question to keep it to the point, however not sure how he would become better off if he became VAT registered in Ireland? Could you expand?

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By paul.benny
02nd Apr 2021 18:07

Although you've 'purposely ignored' VAT, it is actually fundamental. If you have stock in a country, it almost always means that you have to VAT register there, and even if it's your own stock, you have to account for VAT as the goods cross borders. Plus all the admin, customs declarations, duty from UK->EU.

If your client is a fulfilment business, the stock presumably belongs to someone else, so actually, the someone else has to register and have all this faff.

And then you have the complication that your client is providing services to the goods owners from both UK and IE. And possibly even from client UK to client IE (in that the UK business is managing the IE activity.

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Replying to paul.benny:
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By Alex999
07th Apr 2021 11:08

I appreciate I have ignored VAT which is an important issue for him to raise with his clients. However, I'm ok with the VAT issues.

The bit I'm struggling with are the other tax and accounting implications of my client outsourcing his fulfillment/stock picking services to IE.

You mention "And then you have the complication that your client is providing services to the goods owners from both UK and IE."

I know there are legal and insurance issues with outsourcing, but I'm only considering the accounting and tax issues of outsourcing to IE (and again ignoring VAT for now). He's still going to issue sales invoices in GBP from his UK company to his clients for fulfillment services whether that stock is being picked from his warehouse in the UK or from the outsourced warehouse in IE.

The profits are all going to be taxed as corporation tax in the UK, as he's outsourced the service to IE there's no corp tax issues there (there's no permanent establishment in IE).

The client thinks he needs to start issuing sales invoices in EUROS for services being provided in IE, but in my opinion that's just not correct, he should still carry on issuing invoices from his UK company in GBP?

Any comments would be appreciated.

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Replying to Alex999:
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By paul.benny
07th Apr 2021 13:34

Absolutely no regulatory reason that I can think that would require your client to invoice in Euro. Or not to invoice in Euro.

Invoicing in Euro has the benefit that it matches the currency of income and expenses, so client would save the cost of having to convert GBP to EUR to pay the supplier.

I still think the VAT complications kill this and make other considerations irrelevant.

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Replying to paul.benny:
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By Alex999
07th Apr 2021 15:28

Yes I agree, I am definitely advising him against this option, thanks for your input much appreciated....

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By tom123
07th Apr 2021 13:42

Agree, currency not relevant. (apart from having to convert at period end or to pay local VAT).

VAT follows the movement and location of goods - nothing to do with the location of invoicing admin.

Beyond that, sounds messy to me.

To get an IE vat number you need to actually be trading in IE, you can't just get one from afar.

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A Putey FACA
By Arthur Putey
07th Apr 2021 15:09

Your client is providing an outsourcing service in the first instance, that of warehousing and fulfilment. He's now considering sub-contracting part of his operation.

Depending on how goods move there are multiple supply considerations here. Will your client's clients' goods ever get moved from the UK warehouse to the IE one? Are your client's non-UK clients likely to be IE VAT registered. Will any goods be moved to or transit through NI?

Its not just VAT, but also EC Sales and Intrastat reporting, although it is likely that most of this will be down to your client's clients, unless they have outsourced that to him as well.

The accounting would seem to be the easy bit here.

I don't see a need for where Irish VAT registration comes into it, his service to his clients is provided by his UK company, and he follows the place of supply rules to determine the VAT treatment for his non-UK customers.

However, he needs to consider the relationship between his UK company and the IE sub-contractor

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