Not charging VAT for European country

[Ken Figenus]

Agency wants their client to pay us direct for services that they are assisting them with locally (as their UK agency). Agency suggests the words 'This invoice is outside the scope of UK VAT as it is subject to a reverse charge in the country of recipient'.

All looks OK to me as both our end client is ultimately in Switzerland (non EU?) and we are both ultimately supplying services to them (as the manufacturer)?

This was a clear as mud: http://www.hmrc.gov.uk/manuals/vatpossmanual/vatpo... !

Thanks for any advice.

[trickywoo]

As long as you are invoicing the eu company direct and they are paying you that is fine.

You will likely need to complete an ec sales list for your next vat return which shows the Eu company's vat registration number and the amount.

For my eu invoices I put 'no vat is chargeable since the supply is subject to the reverse charge on the customer. Customer vat number xxx'.

[Ken Figenus]

Thanks mate. I've hung on to Flat Rate VAT status as it works pretty ( ) well for us as a small business that generally only spends externally on big VAT reclaim allowable purchases (over 2k) so I have nowhere to input a client VAT number on our returns. Will get and keep a record of the client Swiss VAT number though. That was the missing link!

Cheers

[davepoth]

Ah. If your customer (the person you're charging) is outside the EU then the position is a little bit different.

Have a read of the HMRC guidance (it's mercifully short):

https://www.gov.uk/guidance/vat-how-to-work-out-yo...

And so long as your place of supply is Switzerland according to those rules it's an export sale that is zero rated for VAT and not accounted for on the VAT return.

[Ken Figenus]

Thanks Dave - all totally above board then.

[mikef]

Ken Figenus said:

Thanks mate. I've hung on to Flat Rate VAT status as it works pretty ( ) well for us as a small business that generally only spends externally on big VAT reclaim allowable purchases (over 2k) so I have nowhere to input a client VAT number on our returns. Will get and keep a record of the client Swiss VAT number though. That was the missing link!

I would check that over with your accountant - the biggest disadvantage of flat rate is that you repay the VAT you haven't collected on European sales

Edited to add an example:

I bill Google Ireland for £250, that goes into the box 6 total on my VAT return, and I then pay 14% of that (my flat rate) in box 1. So I pay the VAT man £35 that I didn't recharge to Google. I think that's something you'd want to avoid on a larger contract

Edited by mikef on Thursday 17th December 19:45

[Eric Mc]

Yes - Flat Rate works differently to "normal" VAT.

Even though it is supposed to simplify the VAT process for smaller traders, it can actually cause all sorts of problems for "non-standard" issues, such as provisions of services to EU or non-EU customers. Go through this carefully with your accountant so that you record these transactions properly for Flat Rate VAT purposes.

[E36GUY]

My understanding is that while you can sell exclusive of VAT, in the EU you must put the receivers local VAT number on the invoice so that they can pay at their rate.

That's what we do anyway with no issues.

[Eric Mc]

E36GUY said:

My understanding is that while you can sell exclusive of VAT, in the EU you must put the receivers local VAT number on the invoice so that they can pay at their rate.

That's what we do anyway with no issues.

Are you operating Flat Rate VAT?

[Ken Figenus]

Thanks guys but now I'm confused - I am used to not charging VAT for non EU clients and then the monies received don't then get listed on the VAT return as no VAT was charged. I list only the transactions that included VAT on the quarterly return. Clearly the income itself is later declared for Corporation tax purposes.

Is that all too simple and straightforward

[Eric Mc]

There are a number of categories of "non-VAT" transaction

Zero Rated
Exempt
Outside the Scope

They are all different and have different impacts.

Under the Flat Rate Scheme, you generally apply your designated Flat Rate to

Standard Rated Sales
Zero Rated Sales
Exempt Sales

You don't apply the Flat Rate VAT to "Outside the Scope" transactions.

Here is an extract from a VAT advisor's web site -

"The percentage is applied to all standard rated, zero rated and exempt turnover, even though no VAT is received for zero rated and exempt supplies. Consequently, a flat rate scheme business carries the risk of being liable to more VAT than it has charged. A common example of VAT exempt income includes rent received on residential property. A typical example of zero rated supplies includes goods sold to non-UK businesses located within the EU".

[Ken Figenus]

Ohh crumbs. It couldn't have been straightforward could it. Thanks Eric - I need to seek a definition of what we are selling here as it could fall into a couple of categories - hopefully a category where we do not have to pay vat back where we haven't actually charged it! Bahh humbug!!! Thanks so much - though

[sumo69]

You can always elect to leave the FRS - it isn't compulsory to stay in.

David

[Ken Figenus]

sumo69 said:

You can always elect to leave the FRS - it isn't compulsory to stay in.

David

...

Currently Flat Rate is more advantageous. More bureaucracy and paperwork doesn't appeal!

Have consulted accountant (who initially said it was fine but then I quoted Eric - so may find out Monday...)

Cheers

[Eric Mc]

It may turn out that you have been doing things correctly.

VAT is a minefield. And even the Flat Rate System, which was conceived as a "simplification", can throw up odd-ball and unexpected consequences.

For example, up until a couple of years ago, HMRC insisted that Bank Interest Received HAD to be included in the calculation of any Flat Rate VAT. It took a VAT Tribunal case to get that nonsense stopped.

[PF62]

mikef said:

I would check that over with your accountant - the biggest disadvantage of flat rate is that you repay the VAT you haven't collected on European sales

Edited to add an example:

I bill Google Ireland for £250, that goes into the box 6 total on my VAT return, and I then pay 14% of that (my flat rate) in box 1. So I pay the VAT man £35 that I didn't recharge to Google. I think that's something you'd want to avoid on a larger contract

I am not sure that is a good example if you mean that you are supplying Google services. As a B2B service, the place of supply would be Ireland, where Google Ireland belongs, so your service would be outside the scope of UK VAT and should not fall within the Flat Rate Scheme.

If it was goods that had been sent to Google Ireland, then that would be different, as the goods would have been dispatched from the UK and would fall within the Flat Rate Scheme, even though you wouldn't have charged Google Ireland any VAT.

Take a look at section 6.4 in HMRC's notice 733 - https://www.gov.uk/government/publications/vat-not...

Another area people on the Flat Rate Scheme can come unstuck is buying goods from the EU or services from anywhere outside the UK.

For any goods acquired from the EU, they would need to pay the acquisition tax at the full VAT rate (not the FRS rate) on their return, and could not recover any VAT (unless they were capital expenditure goods costing over £2k). For imports, obviously you have to actually pay the import VAT, not just do the paper exercise on the return.

For services bought in from anywhere outside the UK, they would need to pay the VAT on the reverse charge at the full VAT rate (not their FRS rate) on their return, and they couldn't recover the VAT.

[mikef]

Yes, this is advertising services, as the OP was referring to the supply of services

[PF62]

mikef said:

Yes, this is advertising services, as the OP was referring to the supply of services

Then unless this was a theoretical example, it looks like you are due some money back. From Notice 733 -

If your business sells services to other Member States of the EU then if your supplies are outside the scope of VAT, leave them out of your flat rate turnover. This will depend on the place of supply of the services - see Notice 741A Place of supply of services.

[Ken Figenus]

Switzerland is outside of EU I believe. Accountant will call me Monday but it looks like its marketing services supplied in UK to a client outside of EU. Final marketing film will then be uploaded to them in Switzerland. Have to get this right as could be thousands out of pocket if I agree to this and also have to cough up for VAT niot charged.

[Eric Mc]

Switzerland is definitely outside the EU.


Member states -

Austria
Belgium
Bulgaria
Croatia
Republic of Cyprus
Czech Republic
Denmark, including Greenland and
Faroe Islands
Estonia Finland
France, including French Guiana,
Guadeloupe, IVIartinique and
Reunion
Germany
Gibraltar
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal, including the
continental territory, Azores
Islands and Madeira Islands
Romania
Slovakia
Slovenia
Spain, including the continental
territory, Balearic Islands, Canary
Islands, and Ceuta and Melilla eden
Sweden
United Kingdom



EUROPEAN COUNTRIES/TERRITORIES - NON-MEMBER STATES
Andorra
Faroe Islands
Gibraltar
Greenland
Iceland
Liechtenstein
Monaco
Norway
San Marino
Switzerland
Vatican City

Edited by Eric Mc on Saturday 19th December 15:57