"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?

[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.

[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.

[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.

[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.

[nikman]

alfabeat said:

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.

Yes, that's correct. Supplying individuals, members of the public, end users, apparently is OK. This need for the business recipient of the goods or services to be able to provide a VAT number to the supplier in Spain, is, apparently, applies only to business to business transactions.

There is so much potenntial for confusion and misinterpretation published on "EU" websites such as these statements taken from http://ec.europa.eu/taxation_customs/business/vat/... :

Most businesses (and other persons carrying out an economic activity) need a VAT number (see Article 214 VAT Directive for full details).

In particular, business is obliged to register for VAT in the following cases:

when it carries out the supply of goods or services taxed with VAT;
when it makes an intra-EU acquisition of goods;
when it receives services for which it is liable to pay VAT (under Article 196 VAT Directive);
when it supplies services for which the customer is liable to pay VAT (under Article 196 VAT Directive).

So on first reading "when it receives services for which it is liable to pay VAT" could be construed to mean (and seemigly IS by the Spanish company's accountant)that any business receiving services "for which it is liable to pay VAT"(to it's supplier as charged by the supplier on invoice) must be registered.

EXCEPT "Liable to pay VAT" is more likely to mean liable to pay VAT to the local tax authority INSTEAD of the supplier in the case ofthe 'EU Reverse Charge' mentioned above. Because "liable to pay" is a liability and is different to being charged by a supplier on an invoice.

[nikman]

monoloco said:

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.

All true except in THIS case the Spanish accountant has raised this "need" for the UK customer's VAT regustered number in the full knowledge that his client, the Spanish supplier, has invoiced the UK customer, added 21% IVA and the UK customer has paid the resultant invoices. So the "Reverse Charge" arrangements clearly aren't in play or needed here.

The view of the UK company is that so long as the Spanish IVA is being properly charged, paid by the UK customer then accounted for to the Spanish tax authorities then everyone's obligations are fulfilled. An informal discussion with another Spanish accountant yesterday, revealed that would be his view too. It's just a question of the Spanish business in question here, persuading their accountant of the same!

Any other views of course are welcome, but thanks to everyone who has contributed to this.