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UK VAT "out of scope"

The Company doesn't UK VAT and receives services from EU

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The UK Company sells services that are  "out of scope" and doesn't UK VAT registered. The Company receives services from the EU and CIS countries, almost all of the suppliers are VAT payers. But the UK Company uses these services outside the UK.

As I understand the value of those supplies doesn't add to the value of the Companie's own taxable supplies when determining whether it should be registered for UK VAT? Does the supplier need to pay UK VAT?

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Jason Croke
By Jason Croke
03rd May 2021 15:45

What are the services you sell and what are the services you buy in from EU?

Why are the supplies you buy in from EU not counting towards the UK VAT registration threshold? Is this finance (exempt) related?

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Replying to Jason Croke:
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By AlinaK
04th May 2021 09:01

The Company provides digital teaching services (they are not electronically supplied services), receives almost all marketing, design, programming services. The Company operates and provides services not from UK.

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Jason Croke
By Jason Croke
04th May 2021 10:10

Okay, thanks.

So a UK entity, making supplies of online but not digital education. Place of supply of services is where the customer is, so UK sales will be outside the scope of VAT where the customer is not in the UK.

In terms of purchases, they are mainly of marketing and programming/IT, all of which are purchased from outside the UK, the suppliers invoices are issued without VAT/outside the scope of VAT.

We still need to reverse charge those purchases and those purchases still count towards the VAT registration threshold. Paragraph 5.6 & 5.7 https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a

"If you belong in the UK but are not already UK VAT registered and you receive supplies of B2B general rule services from overseas suppliers (that are treated as supplied where the recipient belongs), the value of those supplies must be added to the value of your own taxable supplies when determining whether you should be registered for UK VAT. Even if you make no taxable supplies yourself you may still be required to register if the value of general rule services received from overseas suppliers exceeds the registration threshold"

The wording indicates there may still be a requirement to register for VAT purely on the basis of the services you buy in from outside the UK. If you did register for VAT then your supplies would still be outside the scope of VAT, so it does ask the question does it matter, and it probably doesn't if you're not reclaiming any inputs but the guidance says to register for VAT regardless.

The risk is, if you have a sale where the customer is in the UK, following the above rules would mean you'd be registered for VAT and you'd charge VAT, if you don't follow the guidance then there is a potential VAT loss to HMRC.

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