VAT registration query about income from Google

[Rachel]

I run a website which sells advertising space through various ad agencies and has visitors (and shows advertising) all around the world as well as in the UK.

I was advised by my previous accountants that I did not need to register for VAT when my income from Google Ireland exceeded the VAT limit. Google still provides the vast majority of my income but I do now also receive payments from other agencies in the UK and abroad.

This morning I came across a thread on a forum suggesting that I should be declaring Google Ireland income.

I’m just very confused!
LS

[Marie Stein]

People often get confused about income from services to overseas companies and I often get queries about the subject. It concerns one of the fundamental VAT principles – the “place of supply” which is often misunderstood.

And to make things even more confusing, you are ALLOWED to register for VAT in the UK to recover VAT on your costs, even if you’re don’t have to charge VAT on your sales to overseas clients.

I’ve explained how this works in practice below.

Place of supply rule

HMRC’s VAT Leaflet 700/12: Should I be registered for VAT, section 2.1 says:
Value Added Tax (VAT) is a tax businesses have to charge when they make business supplies (that is, they sell goods or services) in the United Kingdom (UK) or Isle of Man.
http://tinyurl.com/m7v4hye

So VAT is a tax on supplies (i.e. sales, rentals etc) of goods and services made in the United Kingdom. The important words as far as international services are concerned are the final four: “made in the UK”.

It means that that you have to charge VAT on certain sales of goods and services (known as “taxable supplies) that are “made in the UK”. VAT isn’t charged when supplies are made outside the UK, so you have to know where the supplies are made to ascertain whether or not you have to charge UK VAT.

In the case of sales of goods, the place of supply is usually easy to determine because it’s where the goods are located at the time of sale. In the case of services, the place of supply is the UK when both the supplier and the customer belong in the UK. But under the “general rule”, the supply of most types of services to a business in another country, then the place of supply is deemed to be the country where your customer belongs.

That means that although you’d charge VAT if the customer belongs in the UK, you don’t charge VAT because the customer belongs overseas. So the supplies are made outside the UK, although they would be taxable if made in the UK.

I’ve explained this concept in my article more detail here https://vatexchange.co.uk/node/325, which also includes links to the relevant HMRC notices about the subject.

In the case of your services to Google Ireland, the place of supply of the services is Ireland, because I assume that’s where Google belongs for VAT purposes. So your services WOULD be taxable if made in the UK, but are made outside the UK.

VAT Registration

But there’s a lot of confusion because of the fact that the services to overseas businesses “would be taxable if made in the UK”, because people then assume that they should include the value of their services to overseas businesses for VAT registration purposes.

But as we’ve discussed above, most services supplied to overseas businesses aren’t “made in the UK” so the value of such sales does not count towards the UK VAT regisration limit. So you’re not required to register on account of your overseas sales, unless you make other taxable supplies in the UK that exceed the registration limit.

Unfortunately, I can’t find a sentence in any Notice 700/1 that confirms this without referring to the “place of supply” principle.. HMRC have to deal with so many different rules in their publications and they can’t cover every scenario. However the concept of place of supply is explained in more detail in VAT Notice 741a, see my article for the link. And if you remember that you only have to register for VAT if you make taxable supplies in the UK exceeding the VAT registration limit, then you’ve remembered the important principle.

However you can register for VAT on a voluntary basis to recover VAT on your costs. This DOES NOT mean that you have to charge VAT to your overseas clients. This is explained in the short table at section 2.9 of Notice 700/1 http://tinyurl.com/qcjv53x

But if you do decide to register, you will have to charge VAT on income from your UK clients and any other “taxable supplies” you make in the UK, even if the total is below the registration limit so you may want to find out whether your UK customers will be able to recover VAT that you charge them before deciding to register.

I hope this has helped to clarify the situation for you. It is a complicated subject and of course I can only provide general guidance here on the forum. But I suspect that this covers your situation, which means that you’re not liable to register for VAT if most of your income is from providing advertising services to Google in Ireland and the value of your UK supplies is below the registration limit.

Marie

[Anonymous]

Marie, thank you so much for your help with this. Your answer makes it all seem much clearer. I am now registered for VAT because my advertising income from UK agencies has exceeded the VAT level. I send them invoices with VAT included but do not worry about VAT for income from Google in Ireland.

LS

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