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VAT Registration and Reverse Charges

Receiving B2B versus B2C Services

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A potential client is a small UK web-related services business who is not currently VAT registered because its turnover is below the UK VAT Registration threshold.

They make no sales to non-UK customers but they do purchase online services from EU and also US suppliers.

Some of the services they purchase are clearly e-services (purchase of stock images online – no human intervention) while some are not e-services (such as having a website template specifically designed by non UK designer).

I understand that reverse charges apply on B2B services received, and that where the client is not VAT registered they must still take these into account when considering the UK VAT registration thresholds, but this leads me to two questions.

  1. Is a transaction considered B2B for UK VAT Registration purposes if the non-UK supplier treats it as B2C? This happens a lot as client has no VAT number to supply.
  2. With some eservices such as software purchases from an Irish company, client has been charged UK VAT as a B2C, presumably via the supplier using the Irish version of MOSS. Again, does this need to be considered part of client turnover even though UK VAT has been charged?

If everything must be considered B2B, does this mean that a client with 12-month UK sales of, say, £60k but who purchases services in the same period totalling more £24k from non-UK suppliers would now have to register for UK VAT?

Replies (5)

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Portia profile image
By Portia Nina Levin
20th Oct 2016 11:58

If an EU supplier has treated the supply as B2C, because your client does not have a VAT number, despite being a business, then they will have accounted for VAT in the home state unnecessarily.

It does not alter the effect on your client, other than to perhaps increase the amount of the consideration that they have paid.

Services received by a UK business person that have a UK place of supply under the place of supply of services rules must treat the supply as if they have made it to themselves, putting it within their turnover for the purposes of registration.

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By ChrisKM
20th Oct 2016 12:13

Thanks you for your very quick response. It is greatly appreciated.

Are we therefore saying that the cost of every General Rule type service purchased by a UK business from outside of the UK must automatically be taken into account for VAT Registration purposes because:
1. this is always considered as B2B (even if supplier treats it as B2C),
2. and all these general rule type services will therefore be deemed to have UK as the place of supply?

Sorry to kind of repeat the question, but just wanted to get the logic right in my head.

Thanks again.

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Portia profile image
By Portia Nina Levin
20th Oct 2016 12:43

Yes. That is how I read VATA 1994, s. 8.

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By shaun king
20th Oct 2016 23:27

Portia

Despite was EU VAT law states a number of EU Member States require you to charge local VAT on B2B services if the supplier cannot produce a valid VAT number that can be verified by the supplier.

I have recently dealt with such cases in Italy, France and Greece and am aware of a number of other Member States who apply the same rule.

The Spanish tax authority take the view that every Member state has a nil turnover limit for VAT registration purposes so if you cannot supply a VAT number you aren't in business.

As to your views on the application of the reverse charge and the values counting towards the taxable turnover figure I agree wholeheartedly with you!!

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By ChrisKM
21st Oct 2016 09:14

Thanks again to both of you for your very clear and also well explained answers.

Unfortunately for my poor client, they have monitored (in a fashion) their sales income against the VAT Reg limit and had considered themselves to be under it until possibly a couple of months ago. When you add in these reverse charge services, however, they went over the limit six months ago. A very expensive mistake for them to make as they can’t rebill their client’s for the VAT.

In this case I do have some sympathy for them in that it would not be obvious to them that they need to look at their costs as well as their turnover when considering VAT registration.

Do HMRC ever offer any leeway in situations like this regarding the effective date of registration, or will they always insist on backdating their registration to six months ago?

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