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VAT on services supplied outside the UK

Should VAT be charged on invoice from supplier

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UK Company with one foreign subsidiary.   Directors based overseas and all management decisions made in the country outside the UK

The UK company has a virtual business address and bank account.  There are no employees and it has not started to trade. My client is no VAT Registered.

THE UK company and its subsidiaries has had an audit carried out by a UK auditor and the UK auditor has charged VAT.  My understanding that is a UK company raised an invoice to another UK company then VAT should always be charged

However, The B2B general rule for supplies of services is that the supply is made where the customer belongs.

Reading notice 7.41A,  Para 3  & 6.3 & HMRC manuals vatposs04300 & 05100

Looks like the place of belonging and supply and business establishment is overseas.  Neither there is  fixed establishment as there are no employees in the UK.  Therefore no VAT should be charged.  Though I have a feeling I am missing a key piece of information and the auditor is correct charging VAT

Replies (14)

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By paul.benny
01st Nov 2019 16:22

I broadly agree with your reasoning... except for the point about where the company belongs:

On the one hand, the directors are based overseas; on the other, the company is incorporated in the UK and has a UK bank account.

With no other evidence from trading or employment, I think the company belongs in the UK.

Since the obligation to charge VAT correctly lies with the seller, I can understand that the auditors have gone for the safe option. Nevertheless, have you queried with them?

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Replying to paul.benny:
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By taxwizard
01st Nov 2019 17:56

Thanks its a difficult one as I have charged VAT on my invoices to the UK company as well based on the fact accounting/tax services been rendered to another UK company so there must be VAT. Now I am thinking perhaps I shouldn't have as well since the guidance is unclear and may need to look at case law.

I have not queried it with them as just wanted to have all the facts before questioning them. Yes, I totally understand why they have charged VAT and if my client was VAT registered I would have probably ignored it. The VAT amount is significant hence why I raised it as a question on this forum.

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Replying to paul.benny:
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By taxwizard
01st Nov 2019 18:14

I can't see where it says the place of belonging would be UK based on incorporation under vatposs05100.

Belonging: Where a person belongs:

A business, whether supplier or recipient of a service, belongs in the country where

they have a business establishment, or some other fixed establishment, or

their usual place of residence is located, if they have no business or other fixed establishment (the usual place of residence for a body corporate is where it is legally constituted), or
the establishment most directly concerned with the supply is located, if they have such establishments in more than one country.

Where a supplier or recipient of a service carries on a business through a branch or agency in a country it may satisfy the rules to be treated as making or receiving the supply through an establishment in that country.

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Psycho
By Wilson Philips
01st Nov 2019 16:47

It looks as though the parent has no business establishment, fixed or otherwise. In that case it belongs where it is incorporated.

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Replying to Wilson Philips:
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By taxwizard
01st Nov 2019 17:49

There is a business and fixed establishment in the country where the directors reside but not UK. I am not 100% sure it does belong to the UK

If VAT is chargeable then my client cannot recover the VAT nor it can register for VAT either as it does not have a business or fixed establishment in the UK

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Replying to taxwizard:
Psycho
By Wilson Philips
01st Nov 2019 17:58

I have little doubt that the subsidiary has an overseas fixed establishment. If you say that the parent also has then I’ll have to take your word for it.

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By The Dullard
01st Nov 2019 16:58

I'm not sure that anybody is getting s 9 right, although their responses aren't necessarily wrong.

Where did the auditors actually carry out the audit (at their own offices?) and where did they send their bill too? I think there might be a fact or two missing.

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Replying to The Dullard:
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By paul.benny
01st Nov 2019 17:34

Does it matter where the auditors worked? Services are inherently nebulous and surely the point of the place of supply rules is to provide certainty.

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Replying to paul.benny:
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By The Dullard
01st Nov 2019 17:36

It might matter if they worked at the client's premises, because it might then reveal a fixed establishment somewhere. Ditto where the bill was addressed.

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Replying to The Dullard:
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By taxwizard
01st Nov 2019 17:46

Audit was carried out at their own offices and they travelled overseas to the offices of the audit firm who carried out the audit at the subsidiary.

The invoice was addressed to the UK company (and virtual office address) and sent via email to the directors finance staff.

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Replying to The Dullard:
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By taxwizard
01st Nov 2019 17:45

Audit was carried out at their own offices and they travelled overseas to the offices of the audit firm who carried out the audit at the subsidiary.

The invoice was address to the UK company and sent via email to the directors finance staff.

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By paul.benny
02nd Nov 2019 08:41

A different way of looking at this:

The UK entity is non-trading, so the group audit comprises audit of non-UK trading subsid plus audit of consolidated accounts and non-trading UK parent.
That suggests that most of the audit work relates to the subsidiary. So could the invoicing be directed to the subsidiary - which could either take the whole cost reinvoice parent an appropriate small proportion?

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Replying to paul.benny:
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By taxwizard
02nd Nov 2019 10:10

Yes very good out of the box suggestion and this is a possibility.

However, there are other service provided by UK suppliers like myself and wondered if VAT should be charged based on the place of belonging and business establishment principals. I am now 90% certain VAT should not be charged but how do you convince the UK supplier that there should be no VAT as in good faith they would issue an invoice with VAT.

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Replying to taxwizard:
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By paul.benny
02nd Nov 2019 13:10

How do you convince other suppliers? With difficulty.

Beyond scope of the original question - what's the point of the UK holding co? If it's non-trading, what other services is it receiving?

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