VAT on US customers in UK

Is service income vatable when my customer is in USA, but I am working with his customers in UK

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My ltd company is about to contract as a software support consultant with a US company providing services to their UK customer base.
Query is whether I charge VAT or not.

Scenario 1
No VAT chargeable because my contract is with the US company even though I will be working with his customers in the UK.
So in effect the place of supply is USA because my customer is in the US.

Scenario 2
The place of supply is UK because the businesses I am working with are UK based. Therefore charge VAT.
This doesn't fit right with me because US company will be paying my bill and unable to recover the VAT.

Gut feel Scenario 1 is correct - invoice outside scope to US and we're all good

Anyone been here or have a view.

Thanks
Pete

Replies (17)

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By Hugo Fair
24th Jun 2023 17:58

You've almost got there (albeit I believe to the wrong conclusion) with your references to "supply".

Where your client is located is in itself irrelevant - what matters is where you are making the *supply* (which according to you is in the UK).

[There are of course many other considerations - such as the type/nature of supply - which might attract different treatment. However that doesn't seem likely here.]

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Replying to Hugo Fair:
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By rmillaree
25th Jun 2023 13:02

Hugo
"Where your client is located is in itself irrelevant - what matters is where you are making the *supply* (which according to you is in the UK)."

Presuming we are talking about B2B transactions then you are wrong Hugo - if the general rule applies then its most definitely where the customer belongs for supplier to another business(741a section 3.1)

One would need to check through the detail of notice 741A to see if the "services being performed" may be of a type where the general rule might not apply. An example of services where the general rule would not apply would be work on land and buildings in the uk. One needs to be very careful to check the detail of 741a or seek specific further guidance if unsure.

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Replying to rmillaree:
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By Hugo Fair
25th Jun 2023 14:15

I'll happily bow to correction (VAT not being my specialist subject), especially since my wording was so sloppy!

But I interpreted OP's statement that he will be "providing services to their UK customer base" as meaning the supply may not even be B2B?

We don't know the type/nature of services to be supplied (or on whose authority, or whether each is charged discretely vs a monthly retainer from the US to do whatever turns up ... and so on).
As you say, seeking further guidance (with all details on the table) is best advice.

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By BiNavPete
25th Jun 2023 15:43

Thanks everyone for responses.
The supply will be B2B.
My co will be working as a support partner for US company's software customers in UK. So UK customers of US Co will have purchased/licenced the software from the US and have already been billed from the US for that licencing. My purpose as a partner of the US software co is to offer consultancy to those UK customers. This might take the form of implementation, training or just adhoc work. The UK organisation will be billed directly from the US and I will bill the US for my time.

I've been doing a lot of research today on the subject and still not sure which way it hangs but thought I'd put some more meat on the facts.

As I am writing this it may be more VAT efficient to set the contractuals up as an agency agreement. Then I just bill a commission for the work back to the US? Thoughts here would also be appreciated.

But will take advice tomorrow

Pete

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Replying to BiNavPete:
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By I'msorryIhaven'taclue
25th Jun 2023 15:50

Do you happen to know whether the US company charges VAT to its UK B2B customers?

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Replying to I'msorryIhaven'taclue:
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By BiNavPete
25th Jun 2023 16:02

Don't know but I doubt it. I was in conversation with CEO of US Co on Friday and didn't seem to be aware of UK VAT and the issues it may cause.

Why might it matter though?

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Replying to BiNavPete:
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By I'msorryIhaven'taclue
25th Jun 2023 16:34

I was fishing for more info. Ok, so the US Co doesn’t charge UK VAT otherwise the CEO would know it. Presumably its UK B2B customers reverse charge VAT. Blind alley.

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By BiNavPete
25th Jun 2023 16:06

Agency idea might also be nonsense. I just read definition of agency as

"In a nutshell, to be a VAT 'agent' means to be acting as an intermediary, bringing together two parties and not be involved in the supply chain."

But I would be involved in the supply chain here, because I'd be performing the services

Pete

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VAT
By Jason Croke
25th Jun 2023 16:31

I'm sitting in the Scenario 1 camp, customer is USA, place of supply of services is where the customer, OP's customer is USA, the UK customer is a customer of the USA supplier.

The USA business might want to take time to understand whether VAT is applicable or not, especially around the use and enjoyment rules.

As ever, not enough detail here to constitute formal advice.

https://www.gov.uk/hmrc-internal-manuals/vat-place-of-supply-services/va...

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Replying to Jason Croke:
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By Hugo Fair
25th Jun 2023 17:31

OP: "My co will be working as a support partner for US company's software customers in UK.
So UK customers of US Co will have purchased/licenced the software from the US and have already been billed from the US for that licencing.
My purpose as a partner of the US software co is to offer consultancy to those UK customers. This might take the form of implementation, training or just ad-hoc work.
The UK organisation will be billed directly from the US and I will bill the US for my time."

It's not clear to me how the relationship with such a 'support partner' operates in practice.
But it seems clear that the services to be supplied are not part of the original contract between US supplier and UK end-user, so are presumably ordered individually by those UK end-users.
But they order these from the US (and are invoiced for them in US$), knowing that they will actually be supplied by a UK organisation (who invoices the US rather than the end-user)?

I don't think that 'Use and enjoyment' is relevant as the services being supplied don't seem to fall into the relevant type categories?

But equally I find it hard to believe that it is this easy to avoid charging VAT - surely there would be ,000s of companies doing the same if it was this easy?
[Book your plumber via an online site, based out of Delaware, who will invoice you in the UK without VAT - and send a plumber who lives & works locally to you!]

So, sticking my head above the parapet and preparing for the rotten tomatoes on this hot afternoon, who is meant to be charging VAT to whom?

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Replying to Hugo Fair:
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By rmillaree
26th Jun 2023 08:34

"But equally I find it hard to believe that it is this easy to avoid charging VAT - surely there would be ,000s of companies doing the same if it was this easy?
[Book your plumber via an online site, based out of Delaware, who will invoice you in the UK without VAT - and send a plumber who lives & works locally to you!]"

The reality is thats exactly the situation - the op was pretty clear from the outset they are only billing the us entity. Its not really their problem to be digging into any of the finer detail here generally speaking of stuff that is beyond their remit.
albeit they need to satisfy themselves the general rule does apply - they need to directly ask the question if they have doubts about place of belonging of their customer - and they would probably be best served for large ongoing contracts to perhaps seek further advise if it looks clear their customer is not accounting for vat when they should be. Your plumber example is particualrly poor example as they are clearly providing more than "services only" and its highly likely the land related rules would kick in anyway top stop the general rule applying.

Also note there are implications ref vat for us business passing on their bills - their business customers must reverse charge (that claws back vat for insurance companies banks etc) and there is potential for vat to be due on btc. You are correct that facebook/google probably have a direct advantage over same uk based ad agency as many of their customers are not vat registered so no arguing there is not a level playing field or gaining the system going on here .

"It's not clear to me how the relationship with such a 'support partner' operates in practice.But it seems clear that the services to be supplied are not part of the original contract between US supplier and UK end-user, so are presumably ordered individually by those UK end-users."

Nothing is clear - but nothing is odd about "subcontracting" support out to third party. Its not uncommon for service provider to be outside party that is not directly employed by us company OR engaged by end customer - dont see why any direct contract between two uk entities would necessarily be presumed to be in existsence. As long as customer is ordering from us and thats who they are engaging and paying that would be pretty standard fare.

"I don't think that 'Use and enjoyment' is relevant as the services being supplied don't seem to fall into the relevant type categories?"
We dont know - but we dont have detail with regard to teh end product being supplied here - and this is on of the few items where normaly b2b general rule may not apply - so deffo worth flagging up.

" So, sticking my head above the parapet and preparing for the rotten tomatoes on this hot afternoon, who is meant to be charging VAT to whom?"
I would echo Jasons comments being bang on then money and that your thesis that "its not this easy to do" is wrong - it is that easy and that is how the general b2b rule works. Unless its one of the specific excluded from general rule activities no uk vat needs to be billed here.

Must admit from fairness point of view i hate all these revesre charge rules - the vat office are often simply moving their vat frauds / vat leakge around. Every time they reduce one area of fraud leakage by adding new revesre charge rule - it opens up another similar avenue to the same. HMRC are now in the ridiculous position that most of uk construction now bills much higher % of stuff with no vat being paid across - spotting thevat fraud here is now multiples of times harder tahn it used to be. Previously they did adequate spot checks on companies where no vat sales where higher - now those checkis are like finding a needle in a haystack.

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Replying to Hugo Fair:
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By I'msorryIhaven'taclue
26th Jun 2023 09:10

Hugo Fair wrote:

But equally I find it hard to believe that it is this easy to avoid charging VAT - surely there would be ,000s of companies doing the same if it was this easy?
[Book your plumber via an online site, based out of Delaware, who will invoice you in the UK without VAT - and send a plumber who lives & works locally to you!]

Ok. let's substitute UK based "IT specialist" for UK based "plumber". And let's not forget we're discussing B2B services.

Let's look at this from the viewpoint of the UK based end-user. Either:

The IT Specialist charges output VAT directly to the end user; the end-user pays that VAT and then reclaims it as imput CAT on his VAT return. Net VAT position: for end user = null.

or

The IT Specialist charges no VAT to the US Co. The US Co invoices the end-user without any VAT (because, you have staed, "use and enjoymment isn't an issue). The end-user accounts for VAT under the reverse charge mechanism. Net VAT position for end user = null.

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By BiNavPete
25th Jun 2023 17:52

The core of the issue is my customer is in the USA but the work is being carried out by a VAT registered UK co for a UK Customer of USA Co.

So in simple terms USA co is my customer, bill USA customer without VAT. Job done.
But the place of supply of services issue overlaps this. Lots of this in VAT as you know. (As an aside I was a motor trade FD for 25 years so I get what a dark art this is).
it's murky water but I don't need a VAT compliance visit assessing me for 20% of the earnings!

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By BiNavPete
26th Jun 2023 10:08

To close this one off from my perspective, I've taken professional advice this morning from two sources. Both conclude that the supply of services is to the US and outside the scope under the general rule - Notice 741 para 6.

Could I thank everyone for their inputs here, interesting debate.

Pete

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Replying to BiNavPete:
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By rmillaree
26th Jun 2023 11:01

Thats good to hear BiNavPete - this is a useful thread as it highlights somewhat the complex answer to what is a reasonably simple question - if the whole area wasnt a minefield. All i would say is that everyone should be careful presuming anything in this area of vat - it very much depends on the exact detail of whats going on for that specific arrangements and may depend also on the type of supply being performed.

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By listerramjet
29th Jun 2023 12:16

You are asking the right questions, but would make sense to get proper advice on this, as any likely fall out will be on you.

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Pile of Stones
By Beach Accountancy
29th Jun 2023 17:45

VAT has only been around for 50 years, so it's far too soon for HMRC to offer any guidance

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