"GB" VAT number requirement - sounds silly, but is it?

[nikman]

Supplying business services to a UK domiciled business (Ltd company) that is NOT required to be registerded for VAT in the UK, a Spanish supplier (that is registered for VAT in Spain and is charging Spanish VAT to it's UK customer) is claiming it needs it's UK customer's "GB" VAT registration number. It appears this is soley to enter on to it's own invoice in order to comply with it's regulations.

Various "EU" web links have been provided that allude to this but go into no detail.

The UK business is content to pay the Spanish VAT in addition to the cost of the services supplied, without any means to recover it.

It seems ridiculous that, say, a UK plumber not required to be VAT registered because his turnover is below the VATable threshold, is unable to buy taps or other equipment directly from any supplier anywhere other than in the UK. It seems to be contrary to the whole single market ethos whereby anyone can deal with anyone within in the EU. Of course there are many thousands of sole traders not required to be VAT registered and so unable to provide a GB VAT number to a French, German etc supplier.

Has anyone encountered this? Is there a simple answer?

[jamoor]

This is incorrect you can buy stuff just like any person off the street can and pay Spanish vat.

[TooMany2cvs]

nikman said:

Supplying business services to a UK domiciled business (Ltd company) that is NOT required to be registerded for VAT in the UK, a Spanish supplier (that is registered for VAT in Spain and is charging Spanish VAT to it's UK customer) is claiming it needs it's UK customer's "GB" VAT registration number. It appears this is soley to enter on to it's own invoice in order to comply with it's regulations.

The VAT number is needed if the purchaser wants to buy the goods without 21% IVA (Spanish VAT) being paid.
If no VAT number is provided, then the customer pays the IVA.

You say that the British company is "not required" to be VAT-reg. Is that deliberately odd wording, and they are actually registered?

The Spanish supplier is, of course, free to refuse the customer's business for whatever reason they wish - and not wishing to deal with non-VAT registered customers is a perfectly legitimate reason.

[nikman]

TooMany2cvs said:

The VAT number is needed if the purchaser wants to buy the goods without 21% IVA (Spanish VAT) being paid.
If no VAT number is provided, then the customer pays the IVA.

You say that the British company is "not required" to be VAT-reg. Is that deliberately odd wording, and they are actually registered?

The Spanish supplier is, of course, free to refuse the customer's business for whatever reason they wish - and not wishing to deal with non-VAT registered customers is a perfectly legitimate reason.

No, not deliberately odd wording. The buyer is not required to be registered in the UK because annual turnover has not reached the eligible threshold for registration.

I should have made clear that this has not arisen because of any wish for the buyer to pay the VAT in the U.K. rather than the Spanish supplier paying IVA in Spain. It is simply a stipulation by the accountant of the supplier.

[Eric Mc]

There are many perverse rules regarding VAT especially when trading with customers or suppliers in other EU countries. There MAY be a requirement to register for VAT IN THE OTHER COUNTRY just so that you can trade with customers based there.

Sometimes, you may need to register for VAT in the UK even if you have no UK requirement to do so just to satisfy a customer/supplier in another EU country.

[Ribol]

Eric Mc said:

There are many perverse rules regarding VAT especially when trading with customers or suppliers in other EU countries. There MAY be a requirement to register for VAT IN THE OTHER COUNTRY just so that you can trade with customers based there.

Sometimes, you may need to register for VAT in the UK even if you have no UK requirement to do so just to satisfy a customer/supplier in another EU country.

Interesting - are you suggesting that there are instances where a UK based company could need to register for VAT just to deal with another EU company even though their turnover would not dictate it to under our rules?

Not doubting you in any way btw, just interested in understanding what kind of circumstances could bring such a situation about and more importantly the thinking behind it.

[Eric Mc]

The rules surrounding VAT are fundamentally EU law derived. Since 1993, there has been a concerted attempt to create a level playing field across the whole of the EU so that cross border VAT rule differences do not give some business a VAT advantage over another.

This is difficult because how VAT is applied in each country varies hugely.

You need to read this -

https://www.gov.uk/guidance/register-and-use-the-v...

One of the most difficult aspects of Brexit will be the unravelling and disentanglement of thee complex VAT rules.

[monoloco]

nikman said:

TooMany2cvs said:

The VAT number is needed if the purchaser wants to buy the goods without 21% IVA (Spanish VAT) being paid.
If no VAT number is provided, then the customer pays the IVA.

You say that the British company is "not required" to be VAT-reg. Is that deliberately odd wording, and they are actually registered?

The Spanish supplier is, of course, free to refuse the customer's business for whatever reason they wish - and not wishing to deal with non-VAT registered customers is a perfectly legitimate reason.

No, not deliberately odd wording. The buyer is not required to be registered in the UK because annual turnover has not reached the eligible threshold for registration.

I should have made clear that this has not arisen because of any wish for the buyer to pay the VAT in the U.K. rather than the Spanish supplier paying IVA in Spain. It is simply a stipulation by the accountant of the supplier.

Went through this with a sale to a EU client a few weeks ago and its nothing untoward. Its a thing called 'EU Reverse Charge' of the VAT intended to simplify VAT between countries. The reverse charge is applied when both the seller and recipient are VAT registered in their respective EU country. Using this means the seller invoices without adding VAT to the bill and throws the responsibility for accounting for both the VAT 'input' tax and VAT 'output' tax on the recipient in the destination country. Sounds complicated but it isn't -if you use a proper accounting package (Sage/Xero/QB etc) it will do this for you very simply -just select 'EC-Z'(or whatever) in the VAT code box when processing the bill and it gets automatically cancelled out on the VAT100 return. However, if the recipient isn't VAT registered you can't do this and the seller has to charge VAT on the bill

[nikman]

Thanks for all your input (excuse the pun!). Very helpful and informative.

A final question for you all if I may. Given that the Spanish IVA registered supplier is happy to charge/collect IVA on its sales to the UK business customer and the UK customer is happy to pay it, is there any known legal requirement that Spanish supplier MUST have the UK customer's VAT registered number in order for these transactions to be compliant?

Because IF the UK customer has to register for VAT for this sole reason, then it would be commercially unable to raise its retail prices by 20% in order to fulfil its new obligation to collect VAT on its sales and would likely have to cease trading. For the sake of simply providing a number to appear on its supplier's invoices, this seems to be a very poor and inequitable outcome for both parties.

Thanks again.

[TooMany2cvs]

nikman said:

Given that the Spanish IVA registered supplier is happy to charge/collect IVA on its sales to the UK business customer and the UK customer is happy to pay it, is there any known legal requirement that Spanish supplier MUST have the UK customer's VAT registered number in order for these transactions to be compliant?

Not that I know of, but they may have an internal policy to only deal with VAT-reg overseas buyers for some reason. That wouldn't be illegal.

nikman said:

Because IF the UK customer has to register for VAT for this sole reason, then it would be commercially unable to raise its retail prices by 20% in order to fulfil its new obligation to collect VAT on its sales and would likely have to cease trading.

But they would also be able to reclaim VAT on all their purchases, and the net cost to any of their customers who happened to be VAT registered would be the same.

Are they in a market occupied by only very small competitors, or are their own costs unusually high?

[nikman]

TooMany2cvs said:

nikman said:

Given that the Spanish IVA registered supplier is happy to charge/collect IVA on its sales to the UK business customer and the UK customer is happy to pay it, is there any known legal requirement that Spanish supplier MUST have the UK customer's VAT registered number in order for these transactions to be compliant?

Not that I know of, but they may have an internal policy to only deal with VAT-reg overseas buyers for some reason. That wouldn't be illegal.

nikman said:

Because IF the UK customer has to register for VAT for this sole reason, then it would be commercially unable to raise its retail prices by 20% in order to fulfil its new obligation to collect VAT on its sales and would likely have to cease trading.

But they would also be able to reclaim VAT on all their purchases, and the net cost to any of their customers who happened to be VAT registered would be the same.

Are they in a market occupied by only very small competitors, or are their own costs unusually high?

No, the Spanish supplier has no such internal policy. They are a smallish business and this requirement for a "GB" VAT registration number to appear on their invoices is entirely driven by their accountant whose advice they rely upon.

The customer is not eligible to register on grounds of turnover in a small and competitive market with many other similarly small competitors. Costs being unusually high would cap profitability rather than turnover which determines eligibility for registration or not.

[TooMany2cvs]

nikman said:

The customer is not eligible to register on grounds of turnover

Not required. Big difference.

[nikman]

TooMany2cvs said:

nikman said:

The customer is not eligible to register on grounds of turnover

Not required. Big difference.

Fair point. "Not required" is the case and has been since the first line of my opening post.

[alfabeat]

I come across this situation a lot with Greek supplying companies. In Greece, every business is VAT registered (there is no turnover exemption), and many Greek companies can't understand why you can't give them a VAT number and it raises confusion. There is absolutely no requirement for the UK company to provide a VAT number to them if they are paying the local VAT. I imagine the situation in Spain is similar. They just struggle to comprehend how a UK business doesn't have a VAT number. I'd push back on them.

[jamoor]

alfabeat said:

I come across this situation a lot with Greek supplying companies. In Greece, every business is VAT registered (there is no turnover exemption), and many Greek companies can't understand why you can't give them a VAT number and it raises confusion. There is absolutely no requirement for the UK company to provide a VAT number to them if they are paying the local VAT. I imagine the situation in Spain is similar. They just struggle to comprehend how a UK business doesn't have a VAT number. I'd push back on them.

The thing i don't understand is what if someone off the street wants to buy something? What do they do then?

[alfabeat]

Well nothing there would be no requirement for an individual to provide a VAT number. But many individuals in Greece are registered for VAT as sole traders. If you do any work as a sole trader then you will be VAT registered.

[sunbeam alpine]

nikman said:

Because IF the UK customer has to register for VAT for this sole reason, then it would be commercially unable to raise its retail prices by 20% in order to fulfil its new obligation to collect VAT on its sales and would likely have to cease trading. For the sake of simply providing a number to appear on its supplier's invoices, this seems to be a very poor and inequitable outcome for both parties.

Thanks again.

Maybe (probably) I'm being stupid, but I'm struggling with understanding this part. If the Spanish company supplied him as he wishes, he would pay 21% Spanish VAT, so his purchase price is 21% higher. This means that his profit margins are reduced anyway. Or am I being dense?

As Eric said earlier in the thread, VAT between EU countries is quite a minefield. VAT levied can vary depending on the country and also from product to product. Here in Belgium we have 3 levels - 6%, 12% and 21% - depending on the type of product or service. We buy in products from other countries, and deliver to other countries, and correct VAT charging/accounting can be a big headache. It isn't helped by fraudulent setups (Google "VAT carousel" to see what I mean).

One thing also wasn't clear from your posts - is this a potential new supplier or an existing supplier who has suddenly changed policy?

ETA: On rereading your original post I see they are supplying business services. In this case the question of where those services are supplied/carried out may also have an influence on VAT charging and their policy. I might be wrong, but I believe that if the services are carried out in Spain, they are obliged to charge VAT anyway.

Edited by sunbeam alpine on Friday 17th March 09:00

[TooMany2cvs]

sunbeam alpine said:

Maybe (probably) I'm being stupid, but I'm struggling with understanding this part. If the Spanish company supplied him as he wishes, he would pay 21% Spanish VAT, so his purchase price is 21% higher. This means that his profit margins are reduced anyway. Or am I being dense?

Since he's not VAT reg, he's paying the VAT on it somewhere...

Given that the alternative to paying Spanish VAT is paying UK vat - 20% - it's not a big difference.

[monoloco]

this is categorically just the 'normal' way of handling VAT on inter-EU country sales. As I explained above its called 'Reverse Charge' and avoids the various EU governments swapping VAT payments and reclaims back and forth. If both buyer and seller are VAT registered in their respective countries, the seller doesn't add VAT to the bill and the buyer accounts for both the 'input' and 'output' VAT on their own tax return. That is why if you look at a VAT100 form you will see there are boxes for Sales and Purchases of goods and services to/from other EU countries.

However, this would leave a blindingly obvious way of avoiding paying VAT -ie by claiming they are VAT registered when they aren't and therefore not getting charged VAT on the invoice, So, to avoid this the buyer has to provide their VAT number to the seller which they are then meant to check is valid. Simple.

[Elderly]

monoloco said:

So, to avoid this the buyer has to provide their VAT number to the seller which they are then meant to check is valid. Simple.

and the rest ......




I don't know what proof you have to supply if it's a 'Service'.